Activity in the UK's construction sector dropped at the fastest rate in more than five years in July following a fresh housebuilding slump, a new survey shows. The latest S&P Global UK construction purchasing managers' index (PMI) showed a reading of 44.3 last month, down from 48.8 in June.
Any reading above the 50.0 threshold indicates that activity in the industry is increasing while anything below means it is contracting. The drop in overall activity in July was the fastest since May 2020, when the industry was impacted by the Covid pandemic.
All sectors face decline
The volume of work decreased for all three sub-sectors in July, with civil engineering, commercial and residential construction firms grappling with weaker demand, according to the survey. This was most pronounced for civil engineering, which saw the steepest drop, with some firms surveyed citing less work on public-sector projects.
Housebuilding activity also declined sharply again after tipping into growth in June for the first time in nine months. Firms reporting a reduction in activity said they faced delays on sites, lower volumes of new work coming in and weaker consumer confidence.
Firms prepare for challenges
Joe Hayes, principal economist at S&P Global Market Intelligence, said the latest data indicated a "fresh setback" for the UK construction sector, with firms "preparing for challenging times ahead". "They're buying less materials and reducing the number of workers on the payroll," he said.
"Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects," Hayes added. "Broader themes of uncertainty, both domestically but also internationally, will do little to reignite investment appetites."
Employment continues falling
Employment within the construction sector fell for the seventh month in a row in July, according to the PMI survey, with firms reporting lay-offs, freezing recruitment and not replacing people who leave. However, experts said activity should improve over the coming months as borrowing costs come down and building firms benefit from Government investment.
Elliott Jordan-Doak, senior UK economist for Pantheon Macroeconomics, said the Bank of England's potential interest rate cuts could reduce borrowing costs for businesses, whilst the shock from tariff uncertainty continues to fade. "Moreover, the Government's focus on investment spending and planning reforms should also provide support to the construction industry," he said.
Recovery expected ahead
"The PMI should recover over the coming months," Jordan-Doak predicted.
(PA/London) Note: This article has been edited with the help of Artificial Intelligence.
