The latest construction figures from S&P Global Market Intelligence will serve as a "wake-up call" for the government and its housing aspirations, as activity across the UK fell to its lowest level since the pandemic.

Construction PMI Activity Index
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The latest data will make grim reading for those within government, now more than 12 months on from securing a landslide victory at the election with a promise to get Britain building, and specifically to deliver 1.5 million new homes by the end of parliament.

In June, data from the Ministry of Housing, Communities and Local Government showed planning approvals in England fell 7% in the 12 months to March. Last month, the Health and Safety Executive revealed just 16% of applications sent to the Building Safety Regulator since 2023 had been approved.

And now we have the S&P Global UK Construction Purchasing Managers’ Index (PMI), which reveals a construction activity reading of 44.3 for July, down from 48.8 in June, the steepest drop since May 2020’s 28.9. Readings above the 50 threshold mean activity in the industry is increasing, whereas anything below means it is contracting.

The housing activity index, a subcomponent of the overall score, fell from 50.7 in June to 45.3 in July. As for commercial construction, a softer rise was registered to 45.9, up from 45.1, but lower than the May’s 49.5. Civil engineering saw the sharpest drop, down to 42 from 44.2.

What exactly is behind the decline then, at a time many were hoping to see signs of growth and delivery? According to the 150 firms surveyed by S&P, there are three primary culprits: site delays, lower volumes of incoming new business and weaker customer confidence.

Joe Hayes, principal economist at S&P Global Market Intelligence, says the results “signal a fresh setback for the UK construction sector”. He explains that construction activity across the UK has been “falling since the turn of the year, following a 10-month spell of growth”.

He adds: “Volumes of incoming new work have likewise fallen since January. This sustained decline in demand for new construction projects has clearly weighed on overall activity.”

Subdued UK economic conditions, elevated borrowing costs and rising global economic uncertainty are cited as factors holding back client spending and resulting in delayed decision-making on major projects.

While the results are concerning, experts aren’t too surprised.

Brian Berry, chief executive of the Federation of Master Builders, says the data will act as a “wake-up call to government about its agenda for economic growth”.

Echoing survey respondents, Berry cites a lack of consumer confidence as one the greatest impacts on delivery. “People have less money in their pockets,” he says. “Housing depends on consumer confidence, and consumer confidence is affected by wider economic policy, which is very difficult for consumers when the cost of living is going up, inflation is going up, we’ve got tax increases on the horizon and there’s no help for first-time buyers.”

Rico Wojtulewicz, head of policy and market insights at the National Federation of Builders, agrees, adding that many in the industry “saw this coming”.

“Homes are selling slowly,” he says. “People are not building as quickly as they would because they recognise that if they do, then it doesn’t sell, […] it’s not viable”.

What does this mean for the industry?

Looking ahead, companies surveyed say they are “preparing for challenging times ahead”. Hayes says: “They’re buying fewer materials and reducing the number of workers on the payroll.

“Expectations also continue to underwhelm, despite a modest pick-up in confidence from June’s two-and-a-half-year low.

“Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects. Broader themes of uncertainty, domestically but also internationally, will do little to reignite investment appetites.”

Berry says future delivery will depend on how government “steers the economy to boost consumer confidence”. He adds: “[Government] set out some really good policies about reforming the planning system. How long will it take to translate those policies into action? We need a faster, more efficient planning system; we need investment in planning departments.”

Construction activity across the UK
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Most importantly, Berry warns, if construction continues to decline, it will be catastrophic for SME developers. “We’re already seeing this within our own membership, those deciding to retire early and leave the industry,” he says.

“That’s a problem, particularly when we need to be training more people to come into the industry, and if we’re going to achieve the target the government has set.”

This view is echoed by Wojtulewicz: “With the cost of construction, the cost of employment and the planning delays, the smallest project failure may send a company under. That’s impacting the broader capacity issue because you’ve got fewer people to train and retain.”

Both Berry and Wojtulewicz warn this could also discourage future investment into the UK due to viability concerns.

As Berry says: “This could be a major problem for investors looking at the housing market, especially in central London, which is seeing prices drop quite considerably.”

Potential solutions

What can be done to address these challenges?

Unsurprisingly, Berry says consumer confidence must be restored. He calls on government to address this by supporting first-time buyers via the introduction of support schemes.

“It’s about getting the economy stable, which I know is really challenging, but it’s that consumer confidence that’s having such a detrimental impact, particularly on the small builders.”

Steve Turner, executive director of the Home Builders Federation, also cites support for first-time buyers, as well as the ongoing supply and demand imbalance for private sale housing.

“Demand for private for-sale homes is suppressed by a lack of affordable mortgage lending that is in particular preventing first-time buyers getting on to the housing ladder,” he says.

“If the constraints are addressed then the industry stands ready to increase output that will see the recruit of thousands of people, and a huge boost to UK plc, but we need to see government create a climate within which that is possible.”

Meanwhile, Wojtulewicz addresses the elephant in the room: “[Government] needs to reassess what planning reforms are going to deliver. They need to ensure the planning reforms enable more supply across the broader spectrum, for SMEs particularly, because there’s no point in having demand without supply, because then the price is just spiked again.”

He also highlights another challenge around immigration, resulting in fewer skilled workers in the UK, while the lack of success of alternative construction methods such as modular has not helped matters.

With these solutions in mind, do experts believe the government can still hit its target of building 1.5 million new homes?

Wojtulewicz doesn’t think so. “The coffin was already nailed shut when they set the target. It was always going to be a 300,000-home target by the end of the parliament. The 1.5 million was not realistic in their parliamentary term, because the Conservatives made things so damn difficult for the industry to survive and have a sustainable business model.”

Berry adds: “The 1.5 million is a stretch target. It’s good to have a stretch target, but it’s looking increasingly challenging.”