The downturn in the UK construction sector showed signs of easing in May, however, output and new orders both fell at the slowest pace since January, while growth projections for the year ahead improved again.

Employment remained a weak spot, with job shedding accelerating to its fastest since August 2020. 

The PMI posted 47.9 in May, up from 46.6 in April, to signal the slowest reduction in output volumes since January. Lower business activity has been recorded throughout 2025 to date, but the latest fall was only modest.

House building was the weakest-performing segment in May (index at 45.1). Moreover, the downturn in residential construction work accelerated since April amid ongoing reports of subdued demand conditions.

Civil engineering also decreased at a solid pace in May (45.9), which extended the current period of contraction to five months. Meanwhile, commercial work (49.5) fell only marginally and the rate of decline was the slowest since the downturn began in January.

Total new work received by UK construction companies decreased to the least marked extent for four months in May. Survey respondents attributed reduced order intakes to delayed decision-making among clients and cutbacks to capital spending budgets.

May data indicated that construction firms remained reluctant to backfill vacancies amid a lack of new work to replace completed projects and pressure on margins from rising payroll costs. Employment numbers fell at the fastest pace for nearly five years. Moreover, subcontractor usage decreased to the greatest extent since May 2020.

Purchasing activity was reduced in response to lower workloads. Input buying has now fallen for six months running. This resulted in fewer pressures on supplier capacity and a subsequent improvement in delivery times during May.

The latest improvement in vendor performance was the fastest since September 2024, despite persistent reports of international shipping delays.

Nevertheless, a strong rate of input price inflation continued in May.

Tim Moore, economics director at S&P Global Market Intelligence, said: “The construction sector continued to adjust to weaker order books in May, which led to sustained reductions in output, staff hiring and purchasing. However, the worst phase of spending cutbacks may have passed as total new work fell at a much slower pace than the near five-year record in February.

“Housing activity was the weakest-performing segment in May as demand remained constrained by elevated borrowing costs and subdued confidence. Commercial work was close to stabilisation after a marked decline in April, suggesting that fears about domestic economic prospects have abated after the initial shock of US tariff announcements.

“Output growth expectations across the UK construction sector recovered to the highest so far in 2025. Survey respondents mostly cited a general improvement in sales projections as well as a potential tailwind from falling interest rates over the year ahead.

“On the inflation front, stubbornly high input price pressures were recorded in May, although the overall rise in purchasing costs was the least marked for four months. Many firms noted that suppliers continued to pass through greater payroll costs.

“Rising wages, squeezed margins and subdued demand weighed on construction employment, despite a brighter outlook for business activity. Job shedding was the steepest since August 2020, while subcontractor usage decreased to the greatest extent for five years.”

Matt Swannell, chief economic advisor to the EY ITEM Club, commented: “The construction PMI once again pointed to faltering activity in May. However, the survey did suggest that business fell at the slowest rate since January, recording 47.9 in May, up from 46.6 in April. Ongoing economic uncertainty amid changing trade policy has hurt the pipeline of work as firms put some capex decisions on hold. In response, the residential and commercial sub-sectors continued to report a further drop in output, while civil engineering activities went sideways on the month.

“The construction PMI has offered an inconsistent guide to the true health of the sector. Through the second half of last year, the survey was too optimistic on the sector’s fortunes as interest rates started to be cut. Recent weakness in the survey readings should be interpreted cautiously, as they may be distorted by worsening business sentiment. Nonetheless, there is no doubt that the construction sector faces a challenging outlook. Continued uncertainty will leave businesses hesitant to make investments and will weigh on demand, while the rise in employers’ National Insurance Contributions and the National Living Wage will see labour cost pressures persist.

“While we do think that the PMIs in recent months have been too pessimistic, we forecast growth to slow into the second quarter of 2025. All sectors will feel the effects of pullback on some major spending, while some investment decisions will be postponed. At the same time, fiscal policy will tighten further this year, and those borrowers reaching the end of fixed-rate mortgages will still have to re-finance to higher interest rates. Finally, while the detail and timeframe for implementing the UK-US trade deal is uncertain, UK goods will still incur much higher US tariffs than they would have faced at the start of the year.”

Dominic Crichton, senior quantity surveyor at Thomas & Adamson, part of Egis Group, added: “While the PMI reading shows that overall sector activity is still in decline, the fact that this has been the smallest dip for 2025 so far points towards a potential change of direction in the second half of the year.

“A general feeling of cautiousness remains for the meantime, with economic pressures and the impact of employment law changes being felt across the board. Staffing numbers have fallen sharply, which will only add to the industry-wide skills shortage that we are all familiar with. That said, one positive to take from today’s update is that commercial activity seems to be stabilising, which may offer a boost in the months ahead.

“Outcomes from the UK Government’s Spending Review next week may provide further clarity in terms of civil and infrastructure projects across the public sector, providing a confidence boost that many in the industry are seeking. Despite the near-term headwinds, the outlook for 2025 remains cautiously optimistic, and talks with our clients show pipelines are growing modestly and new opportunities are beginning to emerge.”