UK construction closed 2025 in deep contraction, but with tentative signs of stabilisation. The headline PMI edged up to 40.1 in December, signalling that activity remains firmly below expansion territory, yet the pace of decline eased from November's multi-year low. The downturn was broad-based. Civil engineering was the weakest segment, while housing and commercial construction suffered their sharpest falls since the early pandemic period, reflecting fragile client confidence, delayed investment decisions and persistently weak order books.

Despite these headwinds, sentiment improved. Business expectations rebounded to a five-month high, with over one-third of firms anticipating higher output in 2026. This optimism appears grounded in prospective utilities projects, easing interest rates and expectations of a more supportive domestic macroeconomic environment. Labour shedding and input purchasing continued, but at a slower pace, indicating that firms are adjusting capacity more cautiously rather than aggressively downsizing.

Importantly, inflationary pressures showed clear signs of easing. Softer demand, improved supplier delivery times and increased competition across supply chains pushed input cost inflation to a 14-month low. Overall, the sector remains under strain, but December suggests the downturn may be bottoming out as expectations begin to turn.

The Construction Purchasing Managers' Index (PMI) provides an estimate of business activity in the UK construction sector for the preceding month based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 170 construction companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to gross domestic product. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are compiled by the Chartered Institute of Purchasing and Supply (CIPS) and S&P Global.

The survey is based on techniques successfully developed in the USA over the last 60 years by the National Association of Purchasing Management. It is designed to provide one of the earliest indicators of significant change in the economy. The data collected are not opinion on what might happen in the future, but hard facts on what is actually happening at 'grass roots' level in the economy. As such the information generated on economic trends pre-dates official government statistics by many months.