Britain’s construction sector has suffered its longest downturn since the global financial crisis, with activity contracting for a 12th consecutive month and housebuilding falling to its weakest level since the Covid lockdowns of 2020.
New industry data shows the sector ended 2025 under severe strain, despite tentative signs of improving confidence among firms heading into the new year.
PMI Signals Prolonged Contraction
The latest purchasing managers’ index (PMI) from S&P Global and Chartered Institute of Procurement & Supply recorded a headline reading of 40.1 in December, only marginally above November’s five-and-a-half-year low of 39.4.
Any PMI reading below 50 indicates contraction, and economists had expected a modest improvement to around 42.5, underlining the scale of the disappointment.
Housebuilding at Pandemic Lows
Housebuilding was the weakest part of the sector, with its sub-index dropping to 33.5, the lowest level since May 2020 when construction sites were shut during the first national lockdown.
The figures highlight the challenge facing the government as it seeks to revive housing supply amid high borrowing costs, planning delays and fragile buyer confidence.
Housing secretary Steve Reed acknowledged last month that a sharp acceleration in construction would be required to meet Labour’s pledge to deliver 1.5 million new homes over five years, a target many housebuilders believe will be missed.
Commercial and Infrastructure Weakness
Commercial construction output also fell sharply, posting its fastest decline in more than five and a half years with an index reading of 42. Civil engineering remained the weakest category overall despite a slight easing in the pace of decline, registering 32.9.
Survey respondents cited subdued demand, delayed investment decisions and continued caution from clients as key factors weighing on workloads.
Budget Uncertainty Still Weighs
Tim Moore, economics director at S&P Global Market Intelligence, said companies continued to report difficult trading conditions despite reduced uncertainty following the autumn budget delivered by chancellor Rachel Reeves.
Many firms said fragile confidence and postponed spending decisions were still limiting new orders, even as inflationary pressures eased.
Cautious Optimism Emerges
Despite the prolonged slump, construction firms reported improving confidence about the year ahead. Optimism reached its highest level since July, supported by expectations of lower interest rates and increased infrastructure spending.
Around 37% of firms surveyed said they expected output to rise over the next 12 months, compared with 20% forecasting further decline. Employment and new orders continued to fall in December but at a slower pace than in November.
Wider Economy Shows Stability
The all-sector PMI, combining services, manufacturing and construction, edged up to 50.4 in December from 50.1, pointing to modest overall growth across the UK economy.
However, analysts warned that construction is likely to lag behind other sectors well into 2026.
Analysts Warn of Slow Recovery
Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said negative sentiment remained deeply embedded in the industry.
He added that limited investment support in the budget, combined with only modest relief from falling interest rates, would constrain any near-term recovery. Planned changes to property taxation, including a new high-value council tax surcharge from 2028, were also expected to weigh on the housing market.
Housing Market Outlook Mixed
UK house prices fell unexpectedly in December, but Nationwide Building Society has forecast price growth of up to 4% in 2026, driven largely by first-time buyers as mortgage rates gradually ease.
While demand may stabilise, economists caution that translating improved sentiment into higher construction output will take time after two years of sustained contraction.
