UK Construction Activity Falls Sharply Amid Inflation and Economic Uncertainty
Sharp Decline in UK Construction Sector: Causes and Impacts
Construction Activity and Economic Indicators
LONDON, June 4 (Reuters) - Activity in Britain's construction sector slowed at the sharpest pace in six years last month as economic uncertainty and rising inflation triggered by the Iran war led to a steep fall in new work, a survey showed on Thursday.
S&P Global's monthly purchasing managers' index for the construction sector fell to 38.2 in May from 39.7 in April, its lowest since May 2020 when the COVID-19 pandemic had halted many projects.
That was far below the 50 mark that divides growth from contraction, as it has been since the start of 2025, and was also well below a median forecast of 40.2 in a Reuters poll of economists.
Sector-Specific Challenges
Building firms in the S&P survey reported site delays, fewer tender opportunities, and a lack of demand caused by the Middle East conflict as well as political uncertainty in Britain. The pace of decline was greatest for residential housebuilding and smallest for commercial work such as shops and offices.
Rising Costs and Supply Chain Disruptions
Construction companies said their costs rose at the fastest pace since June 2022, after Russia's full-scale invasion of Ukraine, driven by rising costs for fuel, energy and transport.
Businesses also reported the most widespread delays in shipping times since December 2022, in part due to the closure of the Strait of Hormuz.
Expert Commentary
"Fuel surcharges and rapid increases in prices for energy-intensive raw materials continued to be felt across the construction supply chain," said Tim Moore, economics director at S&P Global Market Intelligence.
"Concerns about a prolonged decline in construction order books, alongside unfavourable near-term UK economic prospects, weighed on business optimism in May."
Outlook and Broader Economic Impact
Business Sentiment and Employment Trends
Firms' optimism about the coming 12 months was the second-weakest since the end of 2022.
Companies shed jobs for the 17th month in a row, though less rapidly than in April which saw the widest job losses this year.
All-Sector PMI Performance
The all-sector PMI - which includes services firms and manufacturers as well - fell to 48.7 last month, below April's 51.5 and its lowest since U.S. President Donald Trump announced wide-ranging tariffs in April 2025.
Reporting Credits
(Reporting by Suban Abdulla; Editing by Hugh Lawson)
