Construction downturn eases but jobs keep falling

The contraction in UK construction eased considerably in July, but declining employment and weak order books continued to weigh on the sector.

The S&P Global UK Construction Purchasing Managers’ Index rose to 44.7 from 38.4 in June. The reading was the highest for four months and substantially above economists’ expectations, although it remained below the neutral 50 threshold separating growth from contraction.

Commercial construction recorded the smallest decline of the three principal categories. Its activity index increased to 46.8 from 41.5, while housebuilding contracted at its slowest pace since October 2025.

Civil engineering remained the weakest segment, but its downturn moderated from the more than six-year low recorded in June. New orders also declined at their slowest rate since September 2025, supported by signs of improving tender opportunities.

The improvement was not sufficient to reverse pressure on employment. Construction companies reduced staffing for a nineteenth consecutive month, although the pace of job losses was the slowest since February.

Subcontractor availability increased at its fastest rate since April 2025, a sign that subdued workloads continue to leave spare capacity across the industry. Greater availability can make procurement easier for main contractors, but it can also indicate pressure on specialist companies and self-employed workers.

Input-cost inflation eased for a second month. The relevant index fell to 69.8 from 77.9 in June and 83.5 in May, when cost increases reached their strongest level for almost four years.

Costs remained elevated despite that reduction. Energy, fuel, imported materials, wages, and transport continue to influence project economics, particularly where contracts were priced before recent increases emerged.

Confidence improved more decisively. Construction companies were at their most optimistic about the year ahead since February, reflecting expectations of new tenders, infrastructure work, residential projects, and stronger economic conditions.

The combination of higher confidence and continued contraction captures the tension facing the sector. Companies can see a larger pipeline developing while still dealing with delayed starts, intense competition, and insufficient current workloads.

Construction typically responds to changes in business investment and financing conditions with a lag. Commercial developments require tenants, funding, planning approval, and contractor capacity, while infrastructure programmes depend on public budgets and procurement timetables.

Housebuilding is similarly affected by mortgage affordability, consumer confidence, planning, land availability, and development costs. Persimmon’s improved first-half results show that some large builders are increasing completions, but the wider PMI indicates that residential activity across the industry remains below previous levels.

Scale, land holdings, and access to capital can allow national developers and contractors to manage weaker periods more effectively than smaller businesses. Specialist subcontractors are more exposed where projects are postponed or principal contractors extend payment terms.

Government housing and infrastructure ambitions depend on reversing the prolonged decline in employment. Nineteen months of workforce contraction can weaken capacity by pushing experienced workers and subcontractors into other sectors or out of the labour market.

Skills shortages can then re-emerge quickly when demand improves, increasing labour costs and slowing delivery. The present availability of subcontractors provides short-term flexibility but does not remove longer-term questions about training and workforce supply.

The latest reading follows a mixed picture across the wider economy. UK manufacturing continued to grow in July, albeit more slowly, while services returned to expansion. Construction remains the weakest of the three principal purchasing managers’ surveys.

The rise to 44.7 marks a substantial improvement from the severe downturn recorded in May and June. It does not amount to recovery, because activity, orders, purchasing, and employment are still declining.

A sustained improvement would require the tender opportunities identified by respondents to progress into signed contracts, site starts, and higher workloads. Companies must also be confident that customers, lenders, and public authorities will maintain investment commitments.

The July survey therefore indicates that the pace of decline has slowed rather than ended. Employment and capacity will remain under pressure until the stronger pipeline begins to translate into completed procurement and active construction work.