The latest Purchasing Managers’ Index (PMI) for UK construction shows the industry is still struggling to recover
The August 2026 PMI has shown construction activity contracting again for the 20th consecutive month.
The headline figure is 44.3, down from the already-contracting 44.7 in July.
Residential construction saw the biggest fall
Residential registered the sharpest downturn to 37.6, while civil engineering fell to 40.5 and commercial to 47.8. This downturn for residential is considered the key reason for the weaker overall performance for August.
New orders saw another drop, however the fall has been modest and the slowest since September 2025, with the usual suspects being reported as the reasons for the continual decline, such as the Middle East conflict and delays in decision making by clients.
Employment also saw an easing in its fall, reaching its slowest since February. The lack of new business is attributed to the fall, but the usage of subcontractors has also increased for the first time in around two years.
Purchasing activity fell sharply, faster than that recorded in July, but the weak demand meant that this was not a huge pressure.
Overall optimism has weakened for the year ahead, with only 38% of respondents expecting an increase in output over the next year, and 20% expecting a decline.
“A weaker overall performance”
Tim Moore, economics director at S&P Global Market Intelligence, said: “UK construction companies experienced another solid reduction in output volumes, with a faster downturn in house building the main reason for a weaker overall performance during August. A sharp and accelerated drop in residential activity more than offset slower falls in the commercial and civil engineering sub-sectors.
“Sluggish demand conditions and low client confidence, combined with anxiety about the impact of the Middle East conflict, were again factors contributing to lower workloads across the construction sector. Total new business nonetheless decreased to the least marked extent for 11 months amid reports of support from transport infrastructure work and some pockets of vitality such as data centre roll outs and energy sector projects.
“Encouragingly, input price inflation eased to its lowest since February and supply chain performance was broadly stable. Softer overall inflation was recorded in August despite upward pressure on operating expenses from higher fuel bills, logistics costs and raw material prices.
“Business optimism was still subdued, as growth projections for the year ahead eased since July and were much weaker than historic trends. Concerns about geopolitical tensions, lacklustre domestic economic prospects and elevated borrowing costs were all noted as holding back confidence.”
Some reactions from industry experts:
Max Jones, director of infrastructure and construction at Lloyds, said: “A weaker reading indicates some uncertainty across the construction sector: there are signs of long-term opportunity, but it is still taking time to translate into activity. That should not obscure the strength of the pipeline across energy, grid infrastructure, water and data centres, alongside major investment planned for ports, airports and transport.
“Many larger contractors are also in a more resilient financial position than the headline figure might suggest. Healthy balance sheets mean firms can continue investing, secure specialist skills or strengthen their supply chains.”
Paul Atkinson, restructuring partner at FRP Advisory, said: “The sector is struggling to turn brief moments of improvement into lasting recovery. While one weaker reading doesn’t undo the encouraging signs we’ve seen in recent months, it does underline the challenge contractors face in translating greater confidence and long-term investment into increased activity.”
“There are still reasons for optimism. Inflation remains manageable, while long-term infrastructure investment continues to create opportunities for businesses with the balance sheets and capabilities to pursue them. The October Budget will be an important moment for confidence, with the sector looking for reassurance that existing infrastructure commitments and the longer-term pipeline remain on course.
“Our research shows property and construction firms could unlock around £1.1bn in additional annual economic output by making key decisions more quickly. A bumpier recovery makes disciplined decision-making even more important, particularly when firms are deciding where to commit capital, which projects to pursue and when to invest for future growth.”
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