UK Building Slumps in Final Blow to Starmer’s New Homes Pledge

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(Bloomberg) — The UK construction sector suffered another sharp contraction in June, as builders continued to grapple with elevated interest rates, rising costs and uncertainty over the economic outlook.

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S&P Global said its construction PMI registered 38.4, only marginally above May’s six-year low of 38.2 and well below the 50 threshold separating growing and falling output. It was worse than the 40 reading expected by economists.

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The sector has shrunk in every month since January 2025, and the latest fall was the second-largest since the start of the coronavirus pandemic.

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Only commercial building saw the downturn ease last month. Civil engineering shrank at the fastest pace since April 2020 and housebuilding recorded the steepest decline so far this year.

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“Construction companies commented on headwinds from subdued housing sales, elevated interest rates and squeezed consumer finances, alongside cutbacks to business investment plans,” said Tim Moore, economics director at S&P Global Market Intelligence. ”Some firms noted delays with infrastructure work and fewer public sector tender opportunities, but energy markets were cited as an area of positivity.”

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Commercial builders said clients were reluctant to spend, with many citing domestic economic uncertainty. Housebuilders meanwhile complained of sales pipelines being hit by sluggish demand and high borrowing costs triggered by the Iran war.

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The slump in homebuilding represents a significant policy failure for outgoing Prime Minister Keir Starmer, who took office in 2024 pledging an extra 300,000 dwellings a year, and underscores the challenge facing his likely successor Andy Burnham.

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The former Greater Manchester mayor has vowed to deliver the biggest council housebuilding programme since the post-World War II period if, as seems inevitable, he becomes premier later this month.

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Cost pressures remained strong last month, with firms reporting higher raw material prices, staff wages and transport bills. The squeeze was nonetheless less acute than in May. Input price inflation slowed from a near four-year peak and there were fewer shipping delays.

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Construction firms continued to shed jobs as new orders fell but there was a pickup in optimism, with twice as many expecting an increase in activity over the year ahead than those predicting a decline. ”Positivity was often linked to forthcoming public sector projects and greater infrastructure spending, alongside the restart of delayed projects,” S&P said.

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