Residential building led the decline, contracting sharply (37.6) and at a faster pace than in July, while commercial (47.8) and civil engineering (40.5) activity eased at their slowest contraction rates in months.

New orders continued to fall, but at the slowest rate since September 2025, helped by infrastructure work and pockets of strength in data centres and energy projects. Firms cited caution linked to Middle East tensions and delayed client decisions. Employment kept shrinking, though job losses were modest, while subcontractor use rose for the first time in almost two years.

Input cost inflation eased to a six-month low despite higher fuel, transport, and raw material costs. Business optimism remained positive overall but softened from July’s five-month high, with 38% of firms expecting growth and 20% expecting decline.

Tim Moore, economics director at S&P Global Market Intelligence, said: “UK construction companies experienced another solid reduction in output volumes, with a faster downturn in house building the main reason for a weaker overall performance during August. A sharp and accelerated drop in residential activity more than offset slower falls in the commercial and civil engineering sub-sectors.

“Sluggish demand conditions and low client confidence, combined with anxiety about the impact of the Middle East conflict, were again factors contributing to lower workloads across the construction sector. Total new business nonetheless decreased to the least marked extent for 11 months amid reports of support from transport infrastructure work and some pockets of vitality such as data centre roll outs and energy sector projects.

“Encouragingly, input price inflation eased to its lowest since February and supply chain performance was broadly stable. Softer overall inflation was recorded in August despite upward pressure on operating expenses from higher fuel bills, logistics costs and raw material prices.

“Business optimism was still subdued, as growth projections for the year ahead eased since July and were much weaker than historic trends. Concerns about geopolitical tensions, lacklustre domestic economic prospects and elevated borrowing costs were all noted as holding back confidence.”

Brian Smith, head of cost management at AECOM, added: “The industry will be disappointed that July’s rebound was only a one-off and that they’re still no closer to a return to growth. We’ll need to see a material downward shift in interest rates and inflation if activity is going to rise above the 50-point benchmark and, crucially, stay above it.

“Client confidence is slowly building and more project tender opportunities are available, so the contractors who’ll get ahead will be the ones that have retained capacity and are investing in efficiency. With investment in energy infrastructure strong, demand in the commercial market for sustainable refurbishment and the government’s plans to invest in social and affordable homes, there’s reason for the industry to feel positive.”