UK construction sentiment continued to fall in August, driven by a pronounced slowdown in housebuilding, new data from the S&P Global UK Construction PMI shows.
The seasonally adjusted Purchasing Managers’ Index (PMI) for the sector registered 44.3 in August, down from 44.7 in July and well below the 50.0 threshold that separates growth from contraction. August marked the twentieth consecutive month in which headline activity remained in contraction territory.
All three sub‑sectors monitored by the survey recorded declines, but the residential sector was the weakest. The housebuilding component dropped to 37.6, indicating a sharper rate of contraction than in July. Commercial activity contracted more moderately (47.8) , its slowest decline since January , while civil engineering fell to 40.5, its least marked slide since March.
Survey respondents pointed to subdued demand and a fall in new project starts, particularly for housing. While total new order intakes fell in August, the rate of decline was modest and the slowest since September 2025. Several firms cited heightened client risk aversion amid ongoing conflict in the Middle East and consequent delays to decision‑making, while others reported some improvement in infrastructure work pipeline.
However, despite the sustained downturn, firms remained cautiously optimistic about the year ahead, although sentiment weakened from July’s five‑month high. Around 38% of surveyed companies expect output to increase over the next 12 months, while only 20% anticipate a decline. Factors tempering optimism included lacklustre client confidence, uncertain domestic economic prospects and geopolitical concerns related to the Middle East; some respondents nevertheless remained optimistic about improved tender opportunities, particularly in the commercial and infrastructure segments.
Labour market indicators showed further job reductions across the sector as completed projects were not being replaced by new work and cost pressures persisted. However, the pace of job losses was modest and subcontractor usage rose in August for the first time in almost two years, suggesting firms are increasingly turning to external labour to manage workloads and flexibility.
Purchasing activity fell sharply and at a faster pace than in July, reflecting weaker demand. The slowdown helped to ease some supply‑chain pressures; overall delivery times were broadly stable, although respondents reported longer international shipping times in some instances.
Input costs continued to rise, driven by higher fuel, transport and raw material prices. Nevertheless, the rate of input‑cost inflation moderated to a six‑month low amid reports of more competitive supplier pricing.
S&P Global Market Intelligence economics director Tim Moore explained “Sluggish demand conditions and low client confidence, combined with anxiety about the impact of the Middle East conflict, were again factors contributing to lower workloads across the construction sector. Total new business nonetheless decreased to the least marked extent for 11 months amid reports of support from transport infrastructure work and some pockets of vitality such as data centre roll outs and energy sector projects.
“Encouragingly, input price inflation eased to its lowest since February and supply chain performance was broadly stable. Softer overall inflation was recorded in August despite upward pressure on operating expenses from higher fuel bills, logistics costs and raw material prices.”
Expert response is mixed
RSM UK national head of construction Kelly Boorman notes the challenges ahead for the industry, commenting “The government’s initial allocation of almost £10bn from the Social and Affordable Homes programme, announced in August, marks a welcome funding boost for housebuilders. However, concerns over demand for private residential activity continues to weigh on sentiment. Further government initiatives to help boost private residential demand, such as first-time buyer incentives, would therefore be welcome by the sector, and could go a long way to easing some of the pressures faced by housebuilders.
“There’s an urgent need for greater clarity around infrastructure spend, including where and how funding will be allocated. With project delivery timelines extending and uncertainty around pipeline visibility and mobilisation of major contracts, the sector would welcome measures to enhance governance and provide early intervention support for problematic contracts. The recent update to the National Infrastructure and Service Transformation Authority (NISTA)’s assurance review toolkit and guidance is a step in the right direction, but supply chain tensions could intensify if more contracts are awarded without adequate funding and support.”
Accenture capital projects and infrastructure lead in the UK and Ireland Huda As’ad expressed similar sentiment, saying “The almost £10 billion commitment to social and affordable housing is significant and aims to support that recovery, but funding alone will not deliver new homes. Faster planning decisions, sufficient workforce capacity and the right skills will be essential. Meeting that challenge will require the construction industry to modernise at a far greater pace than we have seen to date. Firms investing in enhancing their workforce with AI and data-led approaches will be better placed to raise productivity and deliver housing and infrastructure programmes at scale.”
Some industry experts have struck a more positive tone, however, suggesting that while the weakness in these figures is disappointing, the outlook longer term is positive.
Lloyds director of infrastructure and construction Max Jones explained “A weaker reading indicates some uncertainty across the construction sector: there are signs of long-term opportunity, but it is still taking time to translate into activity. That should not obscure the strength of the pipeline across energy, grid infrastructure, water and data centres, alongside major investment planned for ports, airports and transport.
“Many larger contractors are also in a more resilient financial position than the headline figure might suggest. Healthy balance sheets mean firms can continue investing, secure specialist skills or strengthen their supply chains.”
FRP Advisory restructuring partner Paul Atkinson shared that cautious optimism. “The sector is struggling to turn brief moments of improvement into lasting recovery. While one weaker reading doesn’t undo the encouraging signs we’ve seen in recent months, it does underline the challenge contractors face in translating greater confidence and long-term investment into increased activity.”
“There are still reasons for optimism. Inflation remains manageable, while long-term infrastructure investment continues to create opportunities for businesses with the balance sheets and capabilities to pursue them. The October Budget will be an important moment for confidence, with the sector looking for reassurance that existing infrastructure commitments and the longer-term pipeline remain on course.”
Walker Morris construction and engineering partner Carly Thorpe added “While overall activity remains subdued, there are encouraging signs that government funding and significant project announcements are boosting market confidence and securing future pipelines. The uptick in civil engineering is also helping to offset weaker performance elsewhere, with transport, energy and grid projects moving from planning into delivery. We’re also starting to see Spending Review funding commitments translate into activity on the ground, which is building momentum for a partial recovery in Q4.”