5th February 2026

Key Findings:

Downturn in construction output eases considerably at the start of 2026
Residential work is the weakest-performing segment
Business optimism highest since May 2025

January data indicated a much slower decline in construction output than at the end of 2025. All three sub-sectors recorded weaker rates of contraction than those seen in December, helped by a more stable demand environment and reports of a gradual turnaround in sales pipelines.

At 46.4 in January, the seasonally adjusted S&P Global UK Construction Purchasing Managers’ Index™ (PMI®) – a headline index tracking changes in total industry activity – was up sharply from December’s five-and-a-half year low of 40.1. The latest reading was the highest since June 2025, but below the 50.0 no-change value for the thirteenth month in a row and indicative of a solid reduction in total industry activity.

House building was the weakest-performing segment in January (index at 39.3), though the pace of contraction eased to its slowest for three months. Survey respondents cited a lack of new residential development projects and subdued demand conditions.

Civil engineering activity also decreased at a sharp pace in January (40.6). Meanwhile, the latest fall in commercial work was the slowest since May 2025 (48.4). Some firms suggested that post-Budget clarity and improved investment sentiment had helped to stabilise demand in the commercial segment.

Total new work decreased to the least marked extent for three months in January. Where order books deteriorated, this was often attributed to risk aversion and fragile confidence among clients (especially in the housing segment). There were nonetheless some reports of a turnaround in public sector work and sales enquiries for commercial projects at the start of 2026.

Business activity expectations for the year ahead continued to rebound from the 35-month low seen last November. Around 38% of the survey panel predict a rise in output volumes during the next 12 months, while 17% foresee a reduction. The resulting index pointed to the highest level of optimism since May 2025, although confidence was still well below the long-run survey average. Anecdotal evidence cited lower borrowing costs, greater infrastructure spending and hopes of a recovery in housing market activity as factors likely to support construction workloads.

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Meanwhile, a robust and accelerated increase in average cost burdens presented a challenge for construction companies in January. The overall rate of input price inflation was the fastest since last September. Survey respondents noted that suppliers had passed on higher raw material and wage costs. Subcontractor charges also increased at a solid pace, despite a sustained downturn in demand.

Squeezed margins and subdued order books weighed on construction employment. Latest data signalled a solid reduction in staffing numbers, which extended the current period of job losses to 13 months.

Finally, purchasing activity across the construction sector decreased sharply in January. Cutbacks to input buying mostly reflected a lack of new work to replace completed projects. Softer demand and improved materials availability in turn contributed to a sustained improvement in supplier performance. This was highlighted by a shortening of vendor delivery times for the sixth consecutive month.

Tim Moore, Economics Director at S&P Global Market Intelligence, said, “January data provided encouraging signs that the UK construction sector has exited its tailspin, and firms are becoming more hopeful that new projects will get back on track in 2026.

“The latest reduction in total industry activity was the slowest since last June. Commercial work outperformed, with activity moving close to stabilisation amid a postBudget boost to contract awards. House building weakness persisted, although even here the rate of decline eased considerably since December and was the least marked for three months.

“Construction companies noted subdued underlying demand due to fragile client confidence and elevated risk aversion, but there were some reports of improving investment sentiment and greater sales enquiries at the start of the year. As a result, business activity expectations rebounded to an eight-month high, while the pace of job losses moderated.

“Supply conditions improved again in January. Lead times for the delivery of construction items shortened for the sixth month in a row and subcontractor availability increased at a solid pace. However, margins were under pressure as higher wages and raw material prices led to the sharpest rise in purchasing costs since September 2025.”

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