TODAY the PMI data by S&P and CIPS showed the decline in headline construction PMI for March abated slightly, with the headline figures rising to 45.6 from 44.5 in February, as the sector grapples with the continued and widespread impact of the conflict in the Middle East.

Civil engineering rose to 44.8 from 41.0 in February, while housebuilding remained below the 40 mark for a fifth consecutive month.

Nick Cattini, Specialist Construction and Infrastructure Partner at leading audit, tax and consulting firm RSM UK said: “Today’s figures show slowed contraction within UK construction, as the sector grapples with significant headwinds against a weak economic backdrop. Uncertainty across global energy and fuel markets has fed directly into input costs and transport expenses. Industry surveys and cost data indicate that energy, fuel and materials continue to experience upward pressure through early 2026, reinforcing caution among developers and contractors alike.

“Concerns over the longer-term availability and security of materials are weighing on sentiment across construction businesses. Disruptions to global supply chains, combined with energy-intensive material production and constrained logistical routes have reduced a willingness amongst contractors to commit to fixed-price or near-term starts. As a result, we are seeing delays to project starts, with some investors taking longer to reevaluate scheme viability.

“Any green shoots the UK’s housing market saw as we headed into early Spring have been curtailed, with sharp increases to base rates and hundreds of mortgage products being pulled from the market almost overnight. Where reduced inflation and anticipated base rate cuts had lay grounds for cautious optimism across the sector heading into 2026, the outlook now paints a much bleaker picture.

“Whilst there is little immediate encouragement, the UK construction sector has a track record of resilience through volatile cycles. A commitment to major long-term investment in defence, energy and water from government may go some way to mitigating the declines in confidence, while the longer-term impact of the conflict on the sector remains to be seen.”

Thomas Pugh, Chief Economist at RSM UK added: “The ceasefire in Iran announced last night is unambiguously good news for the UK economy, reducing the chances of further sharp rises in energy prices and the need for interest rate hikes. However, energy and fuel prices will likely remain significantly higher than before the crisis for the rest of the year, keeping costs elevated. The jump in the input costs balance to 70.5 reflects the surge in fuel prices last month, which will still have to work its way through supply chains.

“Even though rate hikes may now be avoided, the 2-3 rate cuts that were priced into the market will now probably have to wait until 2027. This will keep the housing market subdued and squeeze business investment, including in construction projects. The slump in the employment index to 45.6 does not bode well for the wider labour market. Taken together with the weak employment balances in the other PMIs, it suggests the unemployment rate will climb higher in the first half of the year.

“What’s more, uncertainty will remain elevated, especially given the temporary nature of the ceasefire. This will further dampen appetite for significant investment projects, at least until there is a more permanent end to the conflict. Ultimately, the UK is still likely to face another bout of stagflation this year as elevated uncertainty, financing and energy costs dampen growth and boost inflation.”

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