The UK's construction industry has experienced its fastest decline in output since the height of the Covid-19 pandemic, as new work opportunities dried up amid geopolitical and domestic uncertainties, according to the latest S&P Global UK construction PMI survey.
Sharp drop in activity
The Purchasing Managers' Index (PMI) for construction fell to 38.2 in May, down from 39.7 in April, signalling a steep contraction in overall business activity. Any reading above 50.0 indicates growth, while below 50.0 signifies contraction. This marks the lowest level since May 2020, with output having been in decline for approximately 18 months.
Construction firms across housebuilding, commercial and civil engineering sectors reported that concerns over the US-Israel conflict with Iran, along with political instability in the UK, weighed heavily on demand. The survey highlighted that project delays, postponed investment decisions, and customer budget cuts led to fewer work opportunities.
Political uncertainty surrounding Prime Minister Sir Keir Starmer's leadership, amid calls from Labour MPs for his resignation, also dampened demand conditions, the survey found.
Rising costs and supply chain issues
Firms are grappling with elevated energy, fuel, and transportation costs. Almost two-thirds of businesses reported an increase in supplier prices during May, primarily linked to fuel and energy costs. International shipping delays and shortages of raw materials were also widely reported.
Tim Moore, economics director at S&P Global Market Intelligence, said: "Anecdotal evidence suggested that economic uncertainty and rising inflation in the wake of the Middle East conflict had triggered the steepest drop in new work since the beginning of the pandemic. Elevated borrowing costs were also reported to have impacted market conditions."
Bright spots ahead
Despite the downturn, upcoming energy sector and power network projects were viewed as a positive for infrastructure work. Max Jones, head of construction at Lloyds, noted: "May's fall shows the UK's construction sector is still facing pressures, with elevated energy and fuel costs impacting projects. But below the headline figure, demand is still being supported by a pipeline of infrastructure work in areas like energy, road and rail, and water."
He added that many firms remain focused on current projects and planning for future growth, investing in skills to prepare for opportunities in cleaner energy and defence.
