The S&P Global UK Construction PMI fell sharply to 48.1 in January 2025 from 53.3 in December.
The decline was the first since February 2024, ending a 10-month period of sustained expansion.
Construction companies cited delayed decision-making by clients on major projects and general economic uncertainty had weighed on business activity at the start of 2025.
Firms also noted the impact of subdued market conditions in the residential building sector.
The latest data shows that house building (index at 44.9) decreased for the fourth successive month and at the fastest pace since January last year.
Civil engineering activity (44.6) declined at a relatively sharp rate, although S&P says this partly reflects disruptions from unusually wet weather at the start of the year.
Meanwhile, output in the commercial construction category also returned to contraction in January (48.9).
These figures were attributed to a lack of tender opportunities and a reluctance among clients to commit to new projects.
January data pointed to a decline in incoming new work for the first time in 12 months. Although only modest, the rate of contraction was the steepest since November 2023.
S&P says anecdotal evidence suggests that a lack of confidence among clients and worries about the UK economic outlook had contributed to fewer sales enquiries.
Purchasing activity decreased for the second month in a row, which S&P says reflects weak order books and a lack of new work to replace completed projects.
Despite softer demand for construction products and materials, the latest survey indicates the steepest rise in input costs since April 2023.
Construction companies noted that suppliers had sought to pass on rising energy, transportation and staff costs. In addition, vendor performance deteriorated to the greatest extent for two years, which was partly linked to shipping delays.
S&P Global Market Intelligence economics director Tim Moore says: “UK construction output fell for the first time in nearly a year as gloomy economic prospects, elevated borrowing costs and weak client confidence resulted in subdued workloads.”
“Output levels decreased across the board in January, with particularly sharp reductions seen in the residential and civil engineering categories.”
“Construction firms noted the fastest fall in residential work for 12 months as market conditions remained somewhat subdued. Anecdotal evidence suggested that caution regarding demand for new projects was prevalent at the start of 2025, despite strong policy support for house building and hopes for a longer-term boost to supply via planning reform.”
“The forward-looking survey indicators were also relatively downbeat in January. New orders decreased at the fastest pace since November 2023 amid many reports of delayed decision-making by clients. Reduced workloads, combined with concerns about the general UK economic outlook, led to a dip in business activity expectations to the lowest for 15 months.”
“There was little respite on the supply front, as transport delays meant that vendor lead times lengthened to the greatest extent for two years. Demand for construction items softened again in January, but purchase price inflation was the highest since April 2023 as suppliers sought to pass on rising energy, fuel and wage costs.”
Shawbrook managing director of development finance Terry Woodley says: “The adverse weather put a definite dampener on activity this month, with construction output dipping, as well as the continued declines in areas such as civil engineering.”
“Not all has been lost, however, as developers have responded positively to the Chancellor’s recent speech on growth in which she outlined the next steps in streamlining planning decisions to ensure the 1.5 million new homes target is met.”
“Though a welcome update, there are still concerns around the current skills shortage in the sector, which could stand in the way of Labour’s vision of ‘shovels in the ground and cranes in the sky’.”
“Construction activity has the potential to take off this year, but until these issues are addressed, the sector risks being held back.”
