UK Construction Output Shrinks at Fastest Rate in Five Years Amid Housebuilding Woes

UK construction output shrank at its fastest rate in over five years in July, with housebuilding output falling sharply. The sector's reversal from growth in June marks a setback for the government's plan to build 1.5 million new homes by the end of the current parliament. Firms reported delays on sites, lower volumes of new work, and weaker consumer confidence. Employment in the sector fell for the seventh month in a row, with firms reporting redundancies and hiring freezes.

Title: UK Construction Sector Faces Sharpest Downturn Since Pandemic

July 02, 2025 - The UK construction sector experienced its most significant downturn in over five years in July, according to the latest S&P Global construction purchasing managers’ index (PMI). The sector's reversal from June's growth marks a significant setback for the government's ambitious plan to build 1.5 million new homes by the end of the current parliament.

The PMI, which tracks the performance of the construction sector, dropped from 48.8 in June to 44.3 in July, the lowest level since May 2020 when the sector was reeling from the first Covid lockdown [1]. The reading, which is below 50, indicates a contraction in the sector.

The downturn was primarily driven by a sharp decline in residential building activity, which pulled the overall PMI down. Firms cited subdued new business, fewer public-sector projects, site delays, and weak consumer confidence as the main reasons for the drop in activity [1].

The data is a concern for the Labour government, which has promised to build 1.5 million homes over five years to address the mismatch between constrained supply and rampant demand. However, the sector's latest performance suggests that the government is falling behind its targets [2].

The construction sector's challenges are not limited to residential building. Civil engineering and commercial construction also shrank in July, although the commercial activity gauge improved slightly [1]. Employment in the sector has been declining for the seventh consecutive month, with firms reporting redundancies, hiring freezes, and reduced staffing levels [1].

Despite the challenges, the government remains committed to its housing targets. In June, the government reported that the number of new homes registered for Energy Performance Certificates (EPCs) fell by 8% compared to the previous year, but planning applications for new homes outside London increased by 49% [3]. The government expects figures to remain low for some time but aims to significantly ramp up supply in the later years of the parliament.

The downturn in the UK construction sector highlights the ongoing challenges in the housing market and the need for the government to accelerate the decision-making process for planning applications to meet its ambitious targets.

References:
[1] https://www.bloomberg.com/news/articles/2025-08-06/uk-builders-suffer-biggest-downturn-since-pandemic-pmi-shows
[2] https://www.theguardian.com/business/live/2025/aug/06/openai-valuation-chatgpt-trade-war-trump-switzerland-brazil-construction-uk-eurozone-business-live-news-updates?filterKeyEvents=false&page=with%3Ablock-6892f0b08f0804180afc197a
[3] https://www.bbc.com/news/articles/cr5rmz0vreno