Today’s PMI data by S&P and CIPS showed the headline construction PMI for May fell to 38.2, down from 39.7 in April, as the sector continues to grapple with the prolonged economic impact of the Middle East conflict.

Civil engineering stayed relatively flat at 36.2, up from 35.3 in April, following a period of dry weather. Housebuilding remained below the 40 mark for a seventh consecutive month at 36.0, down from 38.7 month-on-month and the new orders index dropped to 37.5, the lowest figure since May 2020.

Kelly Boorman, National Head ofConstruction at leading audit, tax and consulting firm RSM UK said: “Sentiment across the construction sector has taken a significant blow due to the ongoing impact of the Middle East conflict. The construction industry continues to face subdued activity amid a challenging economic backdrop defined by uncertainty, with the headline PMI dropping further below the 40 mark.

“Housing activity remains particularly low at 36.0, following some recovery from December 2025, as house prices fell in May and rising mortgage rates and cost-of-living concerns knock consumer confidence and enquiries, which had started to pick up at the beginning of the year. The recent fall in oil prices will aid stability but concerns remain around wider economic pressures, as long-term implications of tightening consumer spend suggests a challenging road ahead for housebuilders. Land value is proving resilient, however valuations are expected to see a decline in the coming months if economic pressures persist.

“There has been some mobilisation across larger infrastructure projects, with defence and healthcare project delivery proving resilient, but with the new orders index down to the lowest level since the pandemic at 37.5, the pipeline contraction is now evident. Projects face significant viability challenges amid continued geopolitical and economic uncertainty, with persistent tensions across the supply chain, due to heightened fuel and material prices, and forecast interest rate increases squeezing already tight margins.

“With construction sector insolvencies expected to rise in the coming months, there is an urgent need for government reforms to improve access to funding, supporting the viability and delivery of large and long-term contracts, and to stimulate the housing market.”

Thomas Pugh, Chief Economist at RSM UK added: “The construction industry looks more vulnerable than other industries to the fall out of the war in Iran. Given that sentiment in the sector was already chronically weak coming into the crisis, the outlook for the sector is much tougher than we were expecting just a few months ago.

“The sector will be hit hard by rising costs, given its heavy usage of diesel and the energy intensive nature of much of its inputs. What’s more, suppliers’ delivery times were the slowest since December 2022, with firms reporting international shipping delays and shortages of some raw materials, which could further increase cost pressures on builders if shipping rates and material costs surge.

“At the same time, the sharp upward repricing of market interest rates will drag on demand, hitting builders on both sides. Admittedly, mortgage approvals have held up in the first two months of the Iran war, but house prices dipped in May, and we struggle to see how the housing market can sustain momentum, given the big jump in mortgage rates and impending stagnation in real household incomes. The silver lining is that the sharp rise in government investment that has been pencilled in for this year should still go ahead.

“Ultimately, if a deal between the US and Iran can open the Strait of Hormuz then oil prices should fall back, easing the pressure on input costs. However, even if a deal emerges soon, we doubt prices will fall back to pre-war levels, given the damage to energy infrastructure. Higher energy prices will continue to work through supply chains for the rest of this year keeping input costs elevated. Add in the risk of a more spendthrift and interventionist administration in Downing Street, which is adding to the upward pressure on gilt yields, and the risks are clearly weighted to the downside for the sector.”

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