Construction PMI: Construction activity plummets to all-time low despite government’s growth targets

According to the latest PMI data by S&P and CIPS, the headline construction PMI for February fell to 44.6, down from 48.1 in January. The decrease marks the lowest level since May 2020. 

The main contributors to the latest decline were housing and commercial activity, which dropped sharply to 39.3 and 39.5. Housing activity also fell to the lowest level since May 2020, continuing the downward trend for the fifth consecutive month. 

Kelly Boorman, National Head of Construction at RSM UK, said: “The headline construction PMI fell to an all-time low evidencing the industry’s frustrations in contract mobilisation delays and lack of confidence in housing demands and planning reforms. Surprisingly, housing activity plummeted to the lowest level since the pandemic, reflecting a lack of confidence in mandatory housing targets, despite government’s pledge to remove red tape and accelerate growth. If anything, it has had the opposite effect and discouraged businesses from building until they have clarity around local plans and housing targets. We’ve also seen some of the more attractive mortgage products pulled from the market, which will have impacted consumer spending and housing demand. Civil engineering activity also fell sharply, which reflects ongoing concern that there’s a major lag in project mobilisation which is causing a ripple effect. Contractors also remain cautious because there still isn’t transparency on plans from local authorities projects and infrastructure spend. 

“Although the construction sector is less likely to feel the ramifications of Trump’s tariffs compared to other sectors, it’s key that businesses plan ahead and mitigate risk by considering diversification of material suppliers, reviewing procurement processes, investing in technology and focusing on working capital management. This is especially important given the decrease in civil engineering activity, with industry still waiting on government intervention to accelerate mobilisation of major projects and commit funding for delivery.” 

She added: “The lack of clarity and direction following the Autumn Budget is contributing to market uncertainty and cashflow challenges, with the industry not bouncing back despite growth targets. 
However, it is expected that there will be an announcement relating to the Planning and Infrastructure Bill in the run up to the Spring Statement, which can’t come soon enough. It’s crucial government prioritises acceleration and mobilisation of projects, while also incentivising businesses to invest in technology ahead of the added employment costs coming in from April.” 

Tom Pugh, Economist at RSM UK, said: “Another fall in the construction PMI signals that stagnation from the end of last year has continued into 2025.

“The employment index fell to the lowest level since Covid-19, suggesting firms have continued to cut back on hiring in anticipation of higher payroll taxes, although the official data shows the labour market is holding up better than the surveys suggest.

“What’s more, input prices ticked up considerably to 64 in February, signally that firms are starting to feel the coming rise in prices as we expect inflation to be close to 4% later this year. The combination of higher prices and lower employment suggest that stagflationary pressures are materialising across the economy.

“Looking ahead there are reasons to be optimistic. First, interest rates should continue their downward path as the Bank of England keeps cutting interest rates throughout the year, which should feed into more affordable mortgages which will help boost demand. Additionally, planning reform should be coming later this year, combined with stronger demand, which should help to stimulate housing construction and provide a boost to the market as growth picks up this year.”