UK Construction Activity Declines Sharply, Raising Concerns Over Housing Targets

The UK construction sector is facing a significant downturn, with activity levels declining sharply in recent months. In July 2025, the S&P Global UK Construction Purchasing Managers’ Index (PMI) fell to 44.3, down from 48.8 in June, marking the sharpest decline since May 2020. This downturn is primarily driven by a substantial drop in housebuilding, raising concerns about the government’s ambitious target of constructing 1.5 million homes by mid-2029.

The residential building sector has been particularly affected, with the PMI for residential construction plunging to 39.3 in July, the lowest since early 2009, excluding the pandemic period. Survey respondents cited weak demand conditions, elevated borrowing costs, and a lack of new work to replace completed projects as contributing factors.

Civil engineering projects have also experienced a significant decline, with the PMI for this sector dropping to 39.5 in July, the lowest since October 2020. This decline is attributed to project cutbacks and a lack of investment in new infrastructure.

Commercial construction has shown some resilience, with the PMI for this sector at 49.0 in July, indicating a marginal decline. However, the overall trend remains negative, with new orders falling sharply and staff numbers declining for the seventh consecutive month.

The downturn in the construction sector is also impacting major industry players. Travis Perkins, a leading British building materials supplier, reported a 24% decline in adjusted operating profit for the first half of 2025, totaling £63 million compared to £83 million in the same period the previous year. The company attributed this drop to ongoing challenges in the UK construction sector, driven by high interest rates and low consumer confidence, which have negatively affected both commercial and residential construction as well as large-scale home renovations.

The decline in construction activity is raising concerns about the government’s ability to meet its housing targets. Despite implementing planning reforms and relaxing borrowing rules to boost infrastructure investment, the sector continues to face challenges. Construction firms have cited delays, fewer tender opportunities, and a lack of client commitment as key issues.

In response to the downturn, the Bank of England is expected to cut interest rates from 4.25% to 4%, marking the fifth cut in the current cycle. However, a unanimous vote is uncertain due to persistent inflation above the 2% target. The construction sector’s weakness, along with sluggish economic growth, high inflation, and rising unemployment, adds to the challenges facing the economy.

Overall, the UK construction sector is experiencing a significant decline, with activity levels falling to their lowest since May 2020. This downturn poses challenges to the government’s housing targets and highlights the need for strategic interventions to revitalize the sector.