The S&P Global/CIPS construction Purchasing Managers’ Index (PMI) registered at 38.2 in May, down from 39.7 in April, with diminishing order books leading towards the downturn. 

Residential activity had an index of 36, while commercial construction was 39 and civil engineering was 36.2.

The contraction rate was at its steepest level since May 2020, with higher fuel, transportation and energy costs prompting the fastest pace of input price inflation in the last four years. 

The drop in new business intakes was the fastest in six years. Construction companies have suggested that hold-ups in projects and investment decisions coupled with general cutbacks to clients’ budgets, had led to limited tender opportunities. 

Some firms have said that the uncertain political climate in the UK had weakened demand conditions during May. 

A shortfall in some raw materials and international shipping delays was attributed to a reported decline in vendor performance. 

A reported increase in purchasing prices was largely attributed to increasing energy costs, higher transportation bills and fuel surcharges. 

Nearly two-thirds of the survey panel indicated an increase in their input prices for May - only 1% saw a decrease. 

Looking forward, approximately 31% of the panel anticipate an increase in output levels in the year ahead, but 25% predict a decrease. 

Jordan Smith, regional director at Egis UK, said: “Residential construction remains under significant pressure as elevated borrowing costs and subdued demand continue to constrain new development. Commercial activity also weakened further, with many clients taking a more cautious approach to investment amid ongoing economic and geopolitical uncertainty. Civil engineering remains subdued, although the pace of decline eased slightly compared with April.”

Brian Smith, head of cost management at AECOM, said: “May is typically a month of optimism, as warmer, drier weather accelerates project starts in perfect building weather. But the mood in the sector is positively frosty as conflicts and geopolitical tensions dampen the UK economy.”

“Contractors’ short-term goal will be damage control. This will mean being hawkish on the projects they take on, ensuring there’s capacity when opportunities do arise and embracing AI and digital tools to boost efficiency.”

Joe Sullivan, partner at MHA, said: “Today’s construction PMI were worse than feared and point to a sector that remains under significant pressure, as construction activity continues its downward trajectory. Activity is still firmly in contraction territory, and there doesn’t seem to be any light at the end of the tunnel for the industry.”

“Across the market, the issue is less about capacity and more about confidence, with clients continuing to delay projects and push decisions further down the line which given the UK and global economic uncertainty is hardly surprising. Order books continue to dwindle and while some may exist on paper, many schemes are not progressing at the pace businesses need. 

Kelly Boorman, national head of construction at leading audit, tax and consulting firm RSM UK, said: “Sentiment across the construction sector has taken a significant blow due to the ongoing impact of the Middle East conflict. The construction industry continues to face subdued activity amid a challenging economic backdrop defined by uncertainty, with the headline PMI dropping further below the 40 mark.”