Hopes rise as construction output decline eases to slowest rate in four months

An uptick in construction output last month has raised hopes that the sector could be moving out of a prolonged downturn, a bellwether index has found.

The S&P Global UK Construction purchasing managers’ index jumped to 44.7 in July from 38.4 in June, the slowest rate of output contraction in four months, while input price inflation eased to a five-month low after May’s near four-year high.

The data provider’s index has now been below the 50.0 no-change rate since January 2025, the longest continuous period of decline since the financial crisis.

But July saw much lower rates of contraction in all three main sub-sectors, with commercial work the strongest performer with an index of 46.8, civil engineering rising to 38.3 and housebuilding to 41.8, its slowest pace of decline since October 2025.

Meanwhile, total new orders fell at the slowest pace for 10 months, with some firms telling the survey they had seen a recent turnaround in tender opportunities for commercial, residential and transport infrastructure work.

Business expectations were positive in July, with around 38% predicting an expansion and only 17% anticipating a decline, the strongest signal of optimism since February.

Tim Moore, economics director at S&P Global Market Intelligence, said the data for July suggests that the performance of UK construction sector has “started to stabilise” after a sharp downturn throughout the second quarter of 2026. 

Moore said: “Business activity levels continued to decline in all three main categories, but in each case the rate of contraction was much slower than in June. This was supported by the weakest reduction in new business intakes since September 2025. 

“Survey respondents commented on signs of a turnaround in client demand and a revival in new tender opportunities in some cases, despite subdued underlying market conditions. This contributed to more upbeat business activity expectations for the year ahead, with confidence levels the highest since February.”

While companies also reported higher raw material prices and fuel costs due to the Middle East conflict, the survey also found softer overall input inflation and the first improvement in supplier performance in five months.

Aecom head of cost management Brian Smith said that despite July’s slower rate of decline, business prospects would be unlikely to change before a clear improvement in the economic outlook.

“Many projects are still in a holding pattern and awaiting a green light from clients who remain cautious of stubbornly high inflation and interest rates,” Smith said, adding that  the situation could be helped by decisive action from the government on public spending.

Carly Thorpe, construction and engineering partner at law firm Walker Morris, said the latest PMI data contains “some signs of stabilisation after a difficult first half of the year” but warned the industry remained under pressure due to regulatory delays and geopolitical uncertainty.

And Thomas Pugh, chief economist at RSM UK, said the industry was still clearly in a slump despite last month’s improved figures. “The construction sector seems to have remained in the doldrums this summer, despite the good weather,” he said.

Pugh added: “Output has barely risen since 2017, and has slumped further over the last nine months. The increase in the PMI in July suggests the situation improved a little last month, but at 44.7, it’s pointing to subdued activity in the sector.”