UK construction in longest downturn since early 2020
Ouch! Britain’s construction sector is suffering its longest continuous downturn since the early days of the Covid-19 pandemic.
Construction output slumped again in August, according to the latest poll of purchasing managers from data provider S&P Global.
Its construction PMI has found:
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Business activity falls for eighth month in a row, but at slower pace than in July
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Solid reductions in new work and employment
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Optimism drops to its lowest since December 2022
S&P Global says there was a “sustained downturn in UK construction output” in August, led by a “marked reductions in the housing and civil engineering segments”.
Civil engineering was the weakest-performing segment in August, with business activity decreasing at the fastest pace since October 2020. Housebuilding activity also fell, suggesting the government is strugging to hit its target to boost home construction.
Tim Moore, economics director at S&P Global Market Intelligence, said:
“Construction activity has decreased throughout the year-to-date, which is the longest continuous downturn since early-2020. August data signalled only a partial easing in the speed of decline after output fell at the fastest pace for over five years in July.
Sharply reduced levels of housing and civil engineering activity were again the main reasons for a weak overall construction sector performance. Commercial work showed some resilience in August, with the downturn the least marked for three months.
There were some positive signals on the supply side as vendors’ delivery times shortened, subcontractor availability improved and purchasing price inflation hit a ten-month low. However, easing supply conditions mostly reflected subdued demand and a lack of new projects.
Elevated business uncertainty and worries about broader prospects for the UK economy meant that construction sector optimism weakened in August. The proportion of panel members expecting a rise in output over the year ahead was 34%, down from 37% in July and lower than at any time since December 2022.”
Key events
Firms cut profit margins and jobs after national insurance rate rise
Two thirds of UK companies cut their proft margins in response to this year’s rise in employment taxes, new Bank of England data shows.
The BoE’s poll of ‘decision makers’ at UK firms has asked how they adjusted to the rise in employers’ national insurance rates, which kicked in at the start of April.
Firms were allowed to select more than one option. 66% of firms reported lowering profit margins, 34% raising prices, 46% lowering employment and 20% paying lower wages than they otherwise would have done, the Bank says.
Construction slump: what the experts say
Overall, the S&P Global UK Construction Purchasing Managers’ Index rose to 45.5 in August, up from 44.3 in July (which was the lowest reading for just over five years).
That’s still below the 50-point mark separating expansion from contraction.
Here’s some expert reaction:
Max Jones, director of infrastructure and construction at Lloyds, says:
“Civil engineering and public infrastructure projects have helped to balance softer demand elsewhere in the market, and there have been some notable examples of commercial projects moving ahead, helping to bring some stability to pipelines.
“Although firms are still facing relatively high materials prices, overall cost pressures have eased compared to earlier in the year, supporting hopes that momentum could build as we enter Autumn.”
Huda As’ad, Accenture’s infrastructure and capital projects lead in the UK and Ireland, says:
“The construction sector has been hit by persistent cost pressures and ongoing operational challenges throughout the year, with housing and civil engineering particularly hard hit.
While recent government initiatives, including the new National Infrastructure and Construction Pipeline and the Great British Energy Act, are shaping a stronger long-term framework – it will take time for benefits to filter through. To navigate uncertainty, the industry should focus on making their supply chains more resilient by adopting modern building methods and digitising operations. The construction sector has the opportunity to power the UK’s economic recovery, but it requires decisive action.”
And here’s Brian Smith, head of cost management at engineering company AECOM:
“An increase in August’s activity, despite remaining below the 50.0 mark, paints a more encouraging picture for the sector. However, even as the pace of decline has eased, firms will be looking for a longer-term stabilisation in new orders before adding capacity to their books.
“In this environment, contractors should keep a tight grip on cash flow and costs, act early if challenges emerge, and remain realistic about risks so they are not caught off guard if market conditions deteriorate. The government’s return from recess will be key as it looks to implement a new 10-year infrastructure plan, backed by £725 billion of public investment.
However, ambition alone won’t be enough. Unlocking projects, accelerating delivery and providing the certainty required for long-term planning will only be possible if the public and private sectors work in partnership to convert investment into tangible outcomes that reshape the UK’s economic and social landscape.”
Employment across the construction sector has also fallen, today’s PMI report shows, as building firms implement hiring freezes and decide not to replace departing staff,
S&P Global explains:
Employment numbers have fallen throughout 2025 to date and the latest reduction was the fastest since May.
A number of firms commented on efforts to mitigate rising payroll costs by cutting back on recruitment. Subcontractor usage also decreased markedly in August and at one of the fastest rates seen over the past five years.
UK construction firms have been hit by a lack of new projects, S&P Global reports.
That led to a solid reduction in purchasing activity across the construction sector.
UK construction in longest downturn since early 2020
Ouch! Britain’s construction sector is suffering its longest continuous downturn since the early days of the Covid-19 pandemic.
Construction output slumped again in August, according to the latest poll of purchasing managers from data provider S&P Global.
Its construction PMI has found:
-
Business activity falls for eighth month in a row, but at slower pace than in July
-
Solid reductions in new work and employment
-
Optimism drops to its lowest since December 2022
S&P Global says there was a “sustained downturn in UK construction output” in August, led by a “marked reductions in the housing and civil engineering segments”.
Civil engineering was the weakest-performing segment in August, with business activity decreasing at the fastest pace since October 2020. Housebuilding activity also fell, suggesting the government is strugging to hit its target to boost home construction.
Tim Moore, economics director at S&P Global Market Intelligence, said:
“Construction activity has decreased throughout the year-to-date, which is the longest continuous downturn since early-2020. August data signalled only a partial easing in the speed of decline after output fell at the fastest pace for over five years in July.
Sharply reduced levels of housing and civil engineering activity were again the main reasons for a weak overall construction sector performance. Commercial work showed some resilience in August, with the downturn the least marked for three months.
There were some positive signals on the supply side as vendors’ delivery times shortened, subcontractor availability improved and purchasing price inflation hit a ten-month low. However, easing supply conditions mostly reflected subdued demand and a lack of new projects.
Elevated business uncertainty and worries about broader prospects for the UK economy meant that construction sector optimism weakened in August. The proportion of panel members expecting a rise in output over the year ahead was 34%, down from 37% in July and lower than at any time since December 2022.”
UK car sales dip, but Tesla slump ends
Just in: UK car sales fell last month, but the slump in demand for Tesla’s vehicles reversed.
The Society of Motor Manufacturers and Traders has reported that new car registrations fell by 2% in August, to 82,908 units. August is typically the quietest month of the year, due to summer holidays and drivers waiting for new number plates in September.
Sales of battery-powered cars rose by almost 15%, which the SMMT attributes to “model choice, ongoing manufacturer discounts and some limited initial impact from the newly announced Electric Car Grant”. This lifted BEV’s market share to 26.5%, the highest recorded in 2025.
After several months of sliding sales, Tesla enjoyed a 7% rise in registrations in August. Elon Musk’s carmaker sold 3,243 models last month, up from 3,013 a year earlier.
That’s a significant improvement on July, when Tesla sales slumped by 59%.
This may be due to Tesla launching an updated version of its Model Y car earlier this year.
Chinese rival BYD quadruled its UK sales in August, to 1,759 from 438 a year earlier.
Mike Hawes, SMMT chief executive, says:
August was the best month yet this year for EV market share and, while it is often volatile due to low overall volumes, the overall trend is positive. September will be critical, with the new number plate factor typically driving around one in seven new car registrations for the year.
There is now a vast choice of electric models across all segments and many consumers will also, for the first time in three years, benefit from a grant to help them switch to electric. With more models being added to the Government’s Electric Car grant each week, there is now every reason for drivers to make the switch, helping deliver both economic growth and decarbonisation.
Oil price drops
The price of oil is dropping this morning, on predictions that the Opec+ group could increase production again.
Opec+ are due to meet on Sunday when they will consider whether to agree another increase in output targets.
OPEC+ had already agreed to raise output targets by about 2.2 million barrels per day from April to September, plus a 300,000 bpd quota increase for the United Arab Emirates.
The possibility of a further increase to supply has pushed Brent crude down by around 1% this morning, to below $67 per barrel.
UK 30-year yields are dipping
UK long-term borrowing costs have fallen a little this morning, as the bond market panic eases.
The yield, or interest rate, on 30-year gilts has dipped by two basis points (0.02 percentage points) to 5.58% this morning.
Last night they closed at 5.6%, having hit a 27-year high of 5.75% on Wednesday morning.
Airline shares fall after Jet2 predicts slower earnings growth
Budget airline Jet2 has spooked the travel industry this morning, by predicting weaker earning growth than expected.
Jet2 told investors that it expects its earnings, on an EBIT basis, to be towards the lower end of the analysts’ consensus range.
It also cautioned that it has “limited visibility” about prospects for this year, as holidaymakers are making bookings later, meaning it still has much of its winter seat capacity still to sell.
Steve Heapy, Jet2’s chief executive officer, says:
“Although we are currently operating in a difficult market, we have a proven business model, a loyal customer base, a flexible approach to capacity management and of course our multi award-winning customer service.
We believe that these factors provide the foundation for a solid financial result this year and for further profitable growth in the years to come.”
Shares in Jet2 tumbled 23% at the start of trading, and are now dow 14%.
Other airlines are suffering too – easyJet have fallen by 4.2%, while British Airways’ parent company IAG has lost 2.3%.
European stock markets have opened calmly too.
In London, the FTSE 100 share index is down by just 3 points (-0.04%) at 9174, following some choppy sessions which saw losses on Tuesday and a partial recovery on Wednesday.
Germany’s DAX dipped by 0.27% at the open in Frankfurt.
Panmure Liberum: UK must show ‘firm hand’ to keep bond yields under control
Signs of calm in the bond market will be warmly welcomed in the UK Treasury.
The jump in Britain’s bond yields risks widening the ‘black hole’ which Rachel Reeves is expected to fill in the autumn budget scheduled for 26 November.
That could mean either spending cuts or tax rises to persuade the Office for Budget Responsibility that the chancellor is keeping within the fiscal rules.
Simon French, chief economist at Panmure Liberum, arugues that UK fiscal and monetary policymakers must demonstrate “a firm hand on the tiller” in the next few weeks, to help sooth UK gilt yields.
He writes:
Coordination of these policymakers will be key, and we are modestly encouraged by Treasury language subtly shifting to the task of controlling inflation.
Saying it though is the easy bit. Making the tough decisions to enable it is far harder.
The jury is out on whether the UK government – and its backbenchers – have the backbone, and the Gilt market knows it.
French also flags that since the government’s Spring Statement earlier this year, the UK’s ten-year yield has been the highest in the G7, “the longest such outlier run in modern market history”:
That suggests that domestic factors, as well as global concerns, have ben pushing up UK bond yields.
Analyst: “The bond market rout could be over”
There is a sense of calm in European and US markets today, reports Kathleen Brooks, research director at XTB, as the recovery in global bond yields on Wednesday helps sentiment.
Brooks writes:
There are signs that the bond market rout could be over. Global government bond sales have been strong this week and have not been impacted by bond market volatility. Added to this, some governments including the UK’s are talking once more about public sector spending cuts, which may boost demand for Gilts in the short term.
Risks are still looming for the bond market, for example, Monday’s confidence vote in the French government. If the government collapses, then French bonds will be in the spotlight. Ahead today, there is a massive $11bn auction of French government debt. We will be watching this closely to gauge demand and to see if political turmoil impacts demand.
That auction is scheduled for 10am UK time….
Trump asks US supreme court to uphold his tariffs
Uncertainty over Donald Trump’s trade wars are another factor hitting bond prices this week.
Last Friday’s court ruling that Trump’s tariffs are illegal has raised the prospect that the White House might have to refund billions of dollars paid by Americans on imported goods, as well as losing out on future revenues.
As the White House has been, ahem, trumpeting the rising income from tariffs, that would be a blow.
The prospect that America might need to borrow even more money to cover for a tariff shortfall could have weighed on bond prices this week, pushing up yields.
Overnight, Trump asked the US Supreme Court to uphold his global tariffs on a fast-track schedule. This means the nine members of the Court will now have the finnal say on whether Trump can raise the US’s effective tariff rate to its highest in around a century.
If the US government loses the case, some of the trade deals struck in recent months could also come unstuck.
Introduction: Relief as Japan’s debt auction proceeds smoothly
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
There are signs that calm may be returning to the global bond market, after Tuesday’s sell-off drove government borrowing costs to multi-year highs.
Earlier today, an auction of 30-year Japanese government bonds proceeded smoothly, helping to support Japan’s debt prices.
Encouragingly for Tokyo, demand for its long-term debt held up pretty well – the bid-to-cover ratio, which measures the amount of bids against the amount of debt on offer, was 3.31, only slightly below the 12-month average of 3.38.
This has helped to push down the yields, or interest rates, on Japan’s debt in the bond market – a relief, after long-term yields hit record highs earlier this week.
Hirofumi Suzuki, a strategist at SMBC, explained:
Given the sharp selloff in the 30-year yesterday, short-covering had been underway from the morning session, and the auction ended up passing smoothly.
“That said, political uncertainty in Japan also continues, so upward pressure on Japanese yields is likely to persist.”
Long-term bonds are under pressure due to concerns about the size of government debt, political obstacles to spending cuts, and structurally higher inflation.
Yesterday, the yields on UK and US long-term debt both fell back, bringing some relief after Britain’s 30-year borrowing costs hit the highest level since 1998.
Bond prices recovered after disappointing US job openings data was released, prompting investors to predict faster interest rate cuts. It showed that for the first time in more than four years, there are fewer open jobs in America than there are job seekers.
Jim Reid, market strategist at Deutsche Bank, explains:
The global bond selloff finally paused for breath yesterday, as weak US data meant investors ramped up their expectations for Fed rate cuts this year.
The main catalyst was the JOLTS report for July, which showed that job openings fell to a 10-month low and exacerbated fears about a labour market slowdown.
The number of job openings fell to an estimated 7.18m at the end of July, down from 7.36m the month before.
Investors will be watching the latest employment data from the US, due later today, for further signs that its labour market is cooling.
The agenda
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9am BST: UK car sales data for August
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9.30am BST: UK construction PMI for August
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12.30pm BST: US Challenger job cuts report
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1.30pm BST: US jobless claims
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1.15pm BST: US ADP private payrolls data
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3pm BST: US service sector PMI
