UK Construction Sector Shows Fragile Recovery Amid Persistent Job Losses
The UK's construction industry has shown tentative signs of stabilising at the beginning of 2026, according to the latest industry data, though significant challenges remain with ongoing job reductions and a particularly weak housebuilding sector.
Construction Activity Shows Modest Improvement
The construction Purchasing Manager's Index (PMI) from S&P Global, which serves as a key indicator of industry activity, edged up to 46.4 in January from 40.1 in December. While this represents the slowest reduction in construction activity over the past seven months, the figure remains well below the crucial 50.0 threshold that separates contraction from expansion.
Tim Moore, economics director at S&P Global Market Intelligence, commented: "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."
Persistent Job Losses and Weak Housebuilding
Despite the modest improvement in overall activity, the sector continues to shed jobs for the thirteenth consecutive month. S&P Global described the latest data as signalling a "solid reduction in staffing numbers", with job losses moderating but still persisting across the industry.
Housebuilding emerged as the weakest-performing segment with a reading of just 39.3, significantly below the overall sector average. The downturn in residential construction has been driven by:
- A lack of new residential development projects
- Subdued demand conditions in the housing market
- Ongoing economic uncertainty affecting buyer confidence
This weakness in housebuilding comes despite ambitious government plans to construct 125,000 new homes through intervention programmes designed to "kickstart" construction activity.
Sector Optimism and Future Expectations
Moore added that the data suggests the sector has "exited its tailspin" with firms becoming "more hopeful" about future prospects. Business activity expectations for the year ahead have rebounded from a 35-month low recorded in November.
The survey revealed that:
- 38 per cent of construction firms predict a rise in output volumes
- Around 17 per cent forecast a reduction in activity
- The remaining firms anticipate stable output levels
Max Jones, director and head of construction at Lloyds, noted: "The modest rise and further momentum will be welcomed by the sector. Despite ongoing challenges, including sticky cost inflation, there are signs that construction firms are optimistic about 2026."
Industry Focus on Skills and Infrastructure
Jones highlighted that many construction companies are now focusing on workforce development and infrastructure projects: "Many are focused on upskilling their workforce and investing in apprenticeships, and civil engineering is looking particularly busy as major new investments in water, energy and grid infrastructure get underway."
This shift toward infrastructure development comes as total new work continued to fall in January, with order books shrinking across many parts of the sector. The industry faces a complex balancing act between managing current challenges and preparing for future opportunities in both residential and infrastructure construction.
