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The UK construction sector contracted sharply in March, with civil engineering experiencing its steepest decline since October 2020 due to weak demand and a lack of infrastructure projects. The S&P Global/CIPS Construction PMI rose slightly to 46.4 but remained below the 50 growth threshold. Rising payroll costs led to hiring freezes and job cuts, while business confidence fell to its lowest since October 2023. Only 40% of firms expect output to grow in the coming year. Despite these challenges, the broader economy showed improvement, as the all-sector PMI rose to 51.0, driven by strong performance in the services industry.
The United Kingdom's construction sector experienced a sharp contraction in March, according to the latest data released on Friday. A combination of dwindling orders, a shortage of new infrastructure projects, and broader economic uncertainty contributed to the industry's continued downturn. The civil engineering segment was particularly hard hit, registering its steepest decline since October 2020, during the height of the COVID-19 pandemic. Advertisement
The monthly S&P Global/CIPS UK Construction Purchasing Managers' Index (PMI) rose slightly to 46.4 in March, up from 44.6 in February and narrowly exceeding economists' forecasts of 46.0, as reported in a Reuters poll. Despite this marginal improvement, the PMI remained firmly below the crucial 50 mark that differentiates expansion from contraction, highlighting ongoing weakness across the sector.
Tim Moore, Economics Director at S&P Global Market Intelligence, commented on the findings, noting that March was particularly difficult for UK construction firms. "Sharply reduced order volumes continued to weigh on overall workloads," he stated. Moore added that the combination of limited new project opportunities and increased payroll costs led to hiring freezes and the decision not to replace departing employees, a reflection of tighter financial conditions across the industry.
New business orders declined for the third consecutive month, though the pace of decline was less severe than in February. Many firms attributed this to subdued demand and challenging market conditions. The outlook among businesses deteriorated significantly, with only 40% of surveyed firms expecting an increase in output over the next year-a level not seen since late 2022.
Civil engineering saw the most significant drop in activity, recording its sharpest fall since the pandemic-induced slump in October 2020. Meanwhile, commercial construction also performed poorly, shrinking at the fastest pace since January 2021. Residential building, although still in decline, saw a less pronounced reduction compared to February, when house-building activity hit a 57-month low.
Labour market conditions in the construction sector also worsened, with companies reporting the most rapid job cuts in nearly four and a half years. Rising employer National Insurance contributions, coupled with declining business confidence and geopolitical tensions, were cited as major concerns. The uncertainty surrounding the UK's economic outlook further eroded industry morale.
Despite the gloom in construction, the broader economy offered some positive signs. The all-sector PMI-which combines data from services, manufacturing, and construction-rose to 51.0 in March, the highest reading since October 2023. This increase was primarily driven by robust performance in the services industry, which continues to outpace the more struggling sectors.
Overall, the latest data paints a concerning picture for UK construction, with limited signs of immediate recovery. Unless new infrastructure projects are initiated and business confidence improves, the sector may continue to grapple with stagnation in the months ahead.
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