UK construction activity fell at the steepest rate since May 2020 in July, according to the latest S&P Global UK Construction Purchasing Managers’ Index (PMI) survey.
The survey reported a marked decrease in the volume of work carried out across all three sub-sectors monitored, with a considerable drag in activity caused by a decline in housing projects.
In July, the headline index fell to 44.3 from 48.8 in June. Where a reduction in activity was reported, firms cited site delays, lower volumes of incoming new business and weaker customer confidence. Some respondents also cited lower work undertaken on public sector projects.
Of the three types of construction work monitored by the index, civil engineering saw the sharpest drop in July with a softer fall reported for commercial construction.
S&P said the volume of new incoming work declined for a seventh month running in July with the pace of contraction at its most pronounced since February.
The volume of construction materials declined in July, although the fall was the softest seen since the start of this year.
In the next 12 months, surveyed companies said they were optimistic of growth on balance, but expectations were weak when compared with their long-run trend.
Joe Hayes, principal economist at S&P Global Market Intelligence, said: “Having trended upwards in recent months, our survey data for July signal a fresh setback for the UK construction sector, with total industry activity falling at the sharpest rate since May 2020. Dissecting the latest contraction, we can see a fresh and sharp drop in residential building, as well as an accelerated fall in work carried out on civil engineering projects.
“Forward-looking indicators from the survey imply that UK constructors are preparing for challenging times ahead. They’re buying less materials and reducing the number of workers on the payroll. Expectations also continue to underwhelm, despite a modest pick-up in confidence from June’s two-and-a-half-year low. Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects. Broader themes of uncertainty, both domestically but also internationally, will do little to reignite investment appetites.”
Terry Woodley, MD of development finance at Shawbrook, added: “The construction industry continues to suffer as activity fell for the seventh time in a row in July, and at the sharpest rate in over five years. Even residential work – the usual pillar of the industry – is struggling to sustain activity numbers. We’re seeing a drop in confidence affect industries across the board, however, labour shortages and economic uncertainty all play a role in tampering the pipeline of work needed to get businesses up and running again.
“This is not lost on the government, though, which is promising. The new £39bn Social and Affordable Homes Programme announced at [chancellor Rachel] Reeve’s spending review is just one example of injecting funds into the construction industry to ensure it continues to be a viable and beneficial source of economic growth. Developers have proven to be agile in tough conditions, and should remain cool-headed through these difficult times, especially with the rest of H2 to look forward to.”
Gareth Belsham, director of Bloom Building Consultancy, said: “There’s no sugarcoating it – this data will be tough to swallow for almost everyone in construction. All three sub-sectors of the industry saw output contract in July, with the sharpest fall coming in civil engineering. Housebuilding, the sector beloved of politicians in need of a photo opp, also declined badly.
“To make matters worse, the pipeline of new work is drying up fast. New order numbers have now fallen for seven months in a row, with July’s slump the worst seen since February. Little wonder contractor confidence is weak and many construction firms are laying off payrolled staff.
“June saw sentiment plunge to its lowest level since December 2022, and while July’s figure improved marginally, even the most optimistic of builders will find it hard to see the glass as half full. Tomorrow the Bank of England is widely expected to cut its base rate for the third time this year, and the prospect of cheaper finance will be welcomed by developers who are struggling to square their finance costs with weak demand for their end product.
“The one bright spot is commercial sector construction. While it too saw output fall in July, at least more commercial schemes are being greenlit. Those that do are laser-focused on value and have a fully costed business case – there is minimal margin for error.”
