UK construction activity contracted for another month in September, but some positivity can still be found
The September 2026 PMI headline figure rose from 44.3 in August to 46.1 in September, showing that although construction is still in decline, the rate has slowed.
50.0 is the target figure, with any number above it showing growth and any number below meaning contraction.
All three areas of construction saw slower declines
Commercial construction was the strongest performer, with an activity index of 48.5, a minor fall from the previous PMI and the slowest decline since May 2025.
Housebuilding dragged residential construction down to an index of 40.7, nearly a full 10 points below margin, as rising borrowing costs and poor market conditions continue to apply pressure.
New orders have also suffered and total new work fell at its fastest rate in three months. Firms have reported delayed decisions on major projects, subdued demand, and worries over geopolitical tensions meaning input costs have risen dramatically.
Construction employment has also continued to fall, with jobs declining every month since January 2025, and September seeing the fastest fall in five months.
Tim Moore, economics director at S&P Global Market Intelligence, said: “The downturn in UK construction output was the least marked since January. All three sub-sectors have seen a degree of stabilisation relative to the rapid declines reported in the second quarter of 2026.
“In September, commercial building work saw its smallest fall in activity since May 2025. House building was again the weakest performer as rising borrowing costs and unfavourable market conditions weighed on output.”
He continued: “Total new orders were relatively subdued in September as construction firms reported longer sales conversion cycles and clients deferred decision-making on major projects. This was attributed to subdued demand and geopolitical tensions, while some also noted pressure from sharply rising input costs. Latest data indicated that overall input price inflation softened for the fourth month in a row, but this trend seems unlikely to endure given recently escalating fuel prices and transportation costs.
“Softer order books, elevated inflationary pressures and concerns about rising borrowing costs were all reasons for construction companies to moderate their year ahead growth expectations during September. This led to a sharp drop in business optimism to its lowest since May.”
The full PMI can be found here.
Industry reacts to the latest figures
Max Jones, director of infrastructure and construction at Lloyds, said: “Construction firms continue to face a challenging operating environment, with elevated energy costs feeding through to project costs. At the same time, many businesses are seeing longer-term opportunities emerge through planned investment in energy, water, transport, ports and airports. Healthy balance sheets are also giving some firms the confidence to pursue targeted acquisitions despite near-term uncertainty.
“The upcoming Budget will be an important moment for the sector. Firms are looking for consistency on long-term infrastructure commitments, providing them with the confidence they need to plan ahead.”
Andy Hulme, chief executive officer of The Hyde Group, said: “When the private for-sale market slows, as this data indicates, affordable housing is one of the few parts of the market that can keep sites moving. Housing associations working alongside long-term capital can deliver affordable homes at scale, and the sooner that capital is put to work, the faster building will recover. We have shown that through our partnerships with firms like L&G, which put pension capital to work alongside grant funding.”
Scott Cabot, head of residential research at Bidwells, said: “Residential activity has fallen again, and continues to underperform commercial construction. The Budget on 28 October is a chance to start fixing the problem. The government’s revival of Help to Buy will help builders by widening the pool of buyers. But the original Help to Buy arrived when borrowing was cheap and build costs far lower. Today a more important barrier is viability, with higher debt costs, construction inflation and new building safety rules all weighing on schemes. The chancellor should make sure smaller builders share in the benefits of Your First Home, and look again at the tax treatment of rental investment, which has reduced the supply of rental homes and contributed to excessive rental inflation in recent years.”
Paul Atkinson, restructuring partner at FRP Advisory, said: “Construction is moving in the right direction, but the sector still has some distance to travel before a convincing recovery takes hold. The underlying opportunity is there, particularly through the UK’s infrastructure pipeline, but converting that into stronger activity remains the challenge.
“Rising energy and fuel costs are adding another layer of pressure, making the economics of new projects harder to navigate and putting greater emphasis on careful planning and cost control. The upcoming Budget will be an important moment for the sector, with businesses looking for greater certainty around infrastructure investment and the wider cost of doing business.
“Our research shows property and construction firms could unlock around £1.1bn in additional annual economic output by making key decisions more quickly. With businesses weighing up new projects against a more challenging cost base, being able to assess opportunities quickly and commit with confidence will be critical to turning the pipeline into activity.”
