The headline index fell to 43.6 from 46.1 in September. Any reading below 50.0 indicates contraction, and October’s was the twenty-second consecutive month below that line. It was also the steepest rate of decline since June, and a setback after signs of stabilisation the previous month.

Residential activity was by far the worst performer. At 35.1, the segment’s index was its lowest since December 2025, pointing to a steep drop in house building. Firms blamed low consumer confidence, heightened risk aversion and rising borrowing costs.

Civil engineering fared better, though it still contracted. At 45.9, its pace of decline was the slowest since May 2025. Commercial activity (46.3) showed some resilience, although the reading eased from September’s 16-month high.

New orders fell at the sharpest rate since June, with firms reporting more cautious budget-setting by clients and fewer tender opportunities. Some companies did report stronger order books thanks to infrastructure spending on data centres, energy networks and utilities.

Purchasing activity dropped sharply, largely because there is too little new work to replace completed projects. Even so, supplier performance worsened for the third month running, and delivery lead times lengthened by the most since May. Firms pointed to low stocks, transport delays and knock-on effects from stretched manufacturing supply chains.

Input cost inflation accelerated sharply after September’s seven-month low, with the rise in purchasing prices the steepest since June. Many firms cited fuel surcharges, higher energy costs and rising prices for aggregates, concrete, electrical items and steel.

Optimism about the year ahead is thin. While 34% of firms expect output to rise over the next 12 months and 27% expect a fall, the narrow gap marks the weakest net sentiment since May. New infrastructure projects were seen as a positive, while political and economic uncertainty were the main concerns.

Tim Moore, economics director at S&P Global Market Intelligence, said October “indicated a setback” for the sector, with activity falling at the fastest pace since June amid the steepest cut in residential work so far this year.

He noted that almost half of the survey panel (48%) reported higher input costs in October, up from 25% in September. “Faced with rising input price inflation, higher borrowing costs and reduced order books, construction firms were unsurprisingly cautious about the year ahead business outlook,” he said, adding that optimism now sits at one of its lowest levels since the end of 2022.

Brian Smith, head of cost management at AECOM, said the faster decline shows “there’s little to buoy the sector,” with firms contending with high inflation, expected interest rate rises and a stagnant economy.

He suggested the sector faces a difficult winter, but sees long-term hope in government efforts to cut red tape and reduce planning delays. The biggest stimulus, he said, could be the upcoming 10-year plan, provided it sets out a clear pipeline of work to give contractors and clients the confidence to invest.

Joe Sullivan, partner at MHA, described the drop as worse than expected and called housing “the sector’s Achilles’ heel,” as households refinancing mortgages at much higher rates face a squeeze on spending power. He said Budget measures to support first-time buyers and social housing were broadly welcomed but unlikely to deliver an immediate boost.

He pointed to brighter spots in infrastructure, energy and data centres, including proposals to speed up grid connections for data centres. But “a pipeline is not work on site,” he warned, and any near-term headline improvement should be seen as modest stabilisation rather than meaningful recovery.

Kelly Boorman, national head of construction at RSM UK, called the figures “a worrying downturn in sentiment,” particularly in housing. She said housebuilders, after significantly reduced volumes throughout 2026, are bracing for a quiet fourth quarter, traditionally a busy period, with no clear sign of a pick-up in the first half of 2027.

Rising build costs and stagnant house prices are squeezing margins and raising concerns over site viability, she said, and builders need clarity on the timing of the “Your First Home” scheme and the £39bn affordable homes funding. On civil engineering, she warned that uncertainty over when major projects will be awarded limits firms’ ability to scale, and that a cluster of awards could later strain supply chains and workforce capacity.

Thomas Pugh, chief economist at RSM UK, attributed the weakness to higher energy prices, elevated market interest rates and uncertainty over planning reforms. He argued that “Your First Home” is “another demand side measure for what is ultimately a supply side problem,” treating the symptom of high housing costs rather than the underlying cause: the viability of building and a lack of supply.

Pugh did offer some encouragement, noting that oil prices have fallen by almost 20% since the end of October, which should bring modest relief towards year-end if they stay below $100 a barrel. However, constrained refining capacity means refined product prices have risen by far more than crude and will stay elevated, likely keeping builders’ margins under pressure.