The UK construction sector ended 2025 in deep contraction though the pace of decline slowed from November’s five-and-a-half-year record fall, according to the latest S&P Global UK Construction PMI.
The headline index rose to 40.1 in December from 39.4, remaining well below the 50.0 threshold that separates growth from contraction for the twelfth consecutive month and marking the second weakest reading since May 2020.
Sharp falls were reported across all major segments. Civil engineering remained the worst-performing category at 32.9, despite a slightly softer decline.
Housing activity dropped to 33.5 and commercial construction to 42.0, both posting their steepest contractions since the early months of the pandemic in May 2020.
FRAGILE CONFIDENCE
Firms cited fragile client confidence, subdued demand and delayed investment decisions ahead of November’s Budget as factors draining order books.
New work declined sharply again in December, capping a full year of falling order volumes, although the rate of contraction eased from November’s lows.
Job shedding and reductions in purchasing persisted but moderated, reflecting a tentative improvement in expectations for workloads in 2026.
Lower interest rates and improving domestic economic conditions will help stabilise demand.
Despite the downturn, sentiment strengthened. Business activity expectations rebounded to a five-month high, with 37% of firms forecasting higher output over the year ahead and 20% anticipating a fall.
Respondents pointed to prospective utilities projects and infrastructure investment, alongside hopes that lower interest rates and improving domestic economic conditions will help stabilise demand.
There were clearer signs of easing cost pressures. Input price inflation slowed to a 14-month low, aided by weaker demand, improved supplier delivery times for the fifth successive month and greater competition among vendors. Subcontractor rates also increased at the slowest pace for just over a year.
CHALLENGING BUSINESS CONDITIONS
Tim Moore, economics director at S&P Global Market Intelligence, said: “UK construction companies once again reported challenging business conditions and falling workloads in December, but the speed of the downturn moderated from the five-and-a-half-year record seen in November.
“Many firms cited subdued demand and fragile client confidence. Despite a lifting of Budget-related uncertainty, delayed spending decisions were still cited as contributing to weak sales pipelines at the close of the year.
“By sector, latest data indicated the fastest reductions in housing and commercial construction since May 2020, while civil engineering was the only segment to signal a slower pace of decline than in the previous month.”
DISMAL YEAR FOR HOUSEBUILDERS
Richard Pike, chief sales and marketing officer at Phoebus Software, added: “December rounded off a dismal year for UK housebuilders with another sharp fall in activity – although the rate of contraction eased from November’s five and half year low.
“Even though interest rates have stabilised and demand for homes remains high, confidence remains weak. Build costs also remain high and the construction sector has been hit particularly hard by labour shortages, with overall unemployment now at 5.1%.”
DEVELOPER CERTAINTY
But he added: “On the positive side, there was a recovery in optimism in December – the highest for five months – and with the Budget out of the way there is more certainty for developers, which should encourage investment.
“Going into 2026, falling rates and improving affordability will stimulate demand, but more radical action is needed to remove bottlenecks in the planning system, force the volume players to get building and support smaller developers with incentives.”
