At 44.6 in February, down from 48.1 in January, the headline PMI registered below the neutral 50.0 threshold for the second month running. The latest reading was also the lowest for nearly five years and signalled a steep decline in total construction activity.

Residential building (index at 39.3) decreased for the fifth month in a row and was the weakest-performing area of construction activity in February. Aside from the pandemic,
the rate of decline was the fastest since early-2009. Survey respondents often cited weak demand conditions, headwinds from elevated borrowing costs and a lack of new work to replace completed projects.

Civil engineering activity (39.5) also registered a steep decline in February. The respective seasonally adjusted index was the lowest since October 2020. Commercial construction (49.0) displayed a degree of resilience, with output levels falling only marginally and at a similar pace to that seen in the previous survey period.

February data pointed to worsening demand conditions across the construction sector. New order intakes decreased sharply and to the greatest extent since May 2020. Survey
respondents noted delayed decision-making among clients, reflecting squeezed budgets and concerns about the economic outlook. Some firms also noted the impact of cutbacks to business investment spending plans.

Construction companies indicated a reduction in their staffing numbers for the second consecutive month. Although only modest, the pace of job shedding was the sharpest recorded since November 2020. Lower workforce numbers were typically linked to the non-replacement of voluntary leavers in response to cost constraints and fewer new project starts. This also led to the steepest fall in sub-contractor usage since May 2020.

Tim Moore, economics director at S&P Global Market Intelligence, said: “Sharply declining order books rippled through the UK construction sector in February, which led to accelerated reductions in output volumes, employment and input buying. Weak demand conditions were attributed to entrenched caution among clients, against a backdrop of subdued consumer confidence and lacklustre economic performance.

“Aside from the pandemic, total industry activity decreased at the steepest pace since December 2019. This was led by considerable reductions in residential building and civil engineering work, while a degree of resilience was reported for commercial construction activity. Survey respondents widely cited a lack of new work in the house building segment, due to soft market conditions and the impact of elevated borrowing costs.

“Construction companies remain optimistic overall about their growth prospects for the next 12 months, albeit less so than on average in 2024 amid increasing concerns about the broader UK economic outlook. There were also signs that rising payroll costs and purchasing prices have become a source of anxiety, with the latest increase in overall business expenses the steepest since March 2023.”

Input buying decreased for the third month in a row during February. Weaker demand for construction products and materials contributed to an improvement in overall supplier
performance for the first time since October 2024. That said, a number of firms continued to report delays at ports and longer wait times for international shipping.

Inflationary pressures intensified, as signalled by the sharpest rise in average cost burdens for nearly two years. Around 38% of the survey panel indicated a rise in their input prices, while only 3% noted a reduction. Higher prices paid for raw materials, energy, transportation and wages were reported.

Business activity expectations meanwhile remained positive overall in February, despite a steep decline in order books and concerns about a lack of new tender opportunities. Around 39% of survey respondents forecast an upturn in output during the year ahead, compared to 17% that forecast a decline. That said, the resulting index signalled a much lower degree of optimism than seen on average in 2024. Hopes of an improvement in underlying market conditions and lower borrowing costs helped to support confidence, while subdued consumer spending and risk aversion among clients were cited as factors holding back optimism.

Neil Morey, technical director at Thomas & Adamson, said: “Construction PMI continuing to fall in February isn’t a surprise, but the worsening picture will be a concern – particularly the steep declines in housebuilding and infrastructure, which are key investment priorities for the government.

“Inflation intensifying once again, an uncertain economic backdrop, and the high cost of finance are taking their toll on the industry. Against the backdrop of falling demand input prices continue to rise, and questions remain over how much of these costs can be absorbed without being passed on to employers in the current market.

“That said, it is encouraging to see resilience in commercial construction and we are certainly seeing more projects get off the ground in this sector – specifically in refurbishments and reuse of existing building stock. And, more generally, we have seen a strong pipeline of projects emerging throughout the year across various sectors during the first couple of months of 2025.

“The short-term picture remains challenging, but longer term there are still reasons to retain optimism. Nearly 40% of survey respondents still expect a rise in output during the year ahead, compared to 17% forecasting a decline. With the Budget and the government’s spending plans not too far away, there could well be some much-needed stimulus on the horizon in the not-too-distant future.”

Brian Smith, head of cost management and commercial at AECOM, said: “Construction output has persevered valiantly to deliver continued growth in recent months. However, the gloom that has fallen over the broader economy since the autumn appears to have finally caught up.

“Despite the well-known challenges in key sectors like housebuilding, the positive view is that the trajectory of interest rates is creating a more certain environment for developers and funds to press on with investment elsewhere.

“That said, contractors will be looking ahead to this month’s Spring Statement with some trepidation. While areas like defence infrastructure are benefiting from increased spending, wider government and local authority investment plans are likely to come in for scrutiny as the Chancellor looks to balance the books to meet her own fiscal rules.”