UK construction sector activity falls to lowest in nearly five years
By Michele Maatouk
Date: Thursday 06 Mar 2025
(Sharecast News) - Activity in the UK construction sector fell to its lowest level in February in nearly five years, according to a survey released on Thursday.
The S&P Global construction purchasing managers' index fell to 44.6 from 48.1 in January, coming in below the 50.0 mark that separates contraction for the second month in a row. It was also the lowest reading since May 2020.
Activity in residential building fell for the fifth month in a row and was the weakest-performing segment, with the index printing at 39.3. Survey respondents cited weak demand conditions, headwinds from elevated borrowing costs and a lack of new work to replace completed projects.
Activity in civil engineering also fell steeply, with the index coming in at 39.5 in February. Commercial construction showed a degree of resilience, however, with output levels falling only marginally and at a similar pace to that seen in the previous survey period; the index was 49.0 in February.
Tim Moore, economics director at S&P Global Market Intelligence, said: "Sharply declining order books rippled through the UK construction sector in February, which led to accelerated reductions in output volumes, employment and input buying. Weak demand conditions were attributed to entrenched caution among clients, against a backdrop of subdued consumer confidence and lacklustre economic performance.
"Aside from the pandemic, total industry activity decreased at the steepest pace since December 2019. This was led by considerable reductions in residential building and civil engineering work, while a degree of resilience was reported for commercial construction activity. Survey respondents widely cited a lack of new work in the house building segment, due to soft market conditions and the impact of elevated borrowing costs.
"Construction companies remain optimistic overall about their growth prospects for the next 12 months, albeit less so than on average in 2024 amid increasing concerns about the broader UK economic outlook. The were also signs that rising payroll costs and purchasing prices have become a source of anxiety, with the latest increase in overall business expenses the steepest since March 2023."
Matthew Pointon, senior commercial real estate economist at Capital Economics, said: "We had attributed the fall in construction activity in January to higher interest rates, but the drop in rates since then has, as yet, not led to a recovery. Indeed, the new orders balance saw a substantial decline to 38.8, from 47.4 in January, again the lowest reading since the Covid-19 lockdowns.
"As well as concerns around financing costs and capital values, higher input costs also look to be constraining construction. The input prices balance increased to 64.0 in February, a two-year high. That may reflect the rise in employer's National Insurance contributions increasing labour costs.
"But once that impact passes through we expect construction activity will see a gradual recovery. After all, we still think interest and mortgage rates will fall back this year and both house prices and commercial property capital values are set to rise."
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