Insights 
VT 
The UK construction sector showed an ease in its downturn as of April, with a PMI of 46.6 compared to the expected 45.8. House building displayed some resilience, while commercial construction continued to decline, experiencing its fastest decrease since May 2020. The sector remains under pressure despite these improvements.
While construction output levels continued to decline, the rate of decrease was the slowest in three months. This was due to reduced contractions in residential building and civil engineering. However, commercial construction’s decline accelerated, influenced by risk aversion and cautious spending decisions. Cost pressures remained strong, with only a slight reduction in input price inflation from the previous month’s 26-month peak.
Business Activity Expectations Rise
Despite challenges, there was a slight improvement in business activity expectations for the year ahead. Output growth projections reached their highest level this year, with optimism around a potential turnaround in residential building workloads. Survey respondents noted rising prices for raw materials and increased supplier payroll costs, despite a drop in input purchasing.
The information above highlights the latest PMI reading for the UK construction sector, which, although still indicating contraction, was slightly better than forecast. A score below 50 reflects a decline, yet the figure of 46.6 suggests the pace of fall has softened. Most of the easing stemmed from a stabilisation in housebuilding and civil engineering work, though other areas, particularly commercial construction, saw sharper weakness—its downturn now the steepest since the first wave of pandemic disruptions nearly four years ago.
This gives a mixed picture. On the one hand, a few less worrying figures and a slowdown in downward momentum could suggest some near-term steadiness. The market appears to be reading this as a hint that conditions, though still difficult, may not worsen in the immediate future. On the other hand, commercial demand seems to be under fresh strain, with firms hesitating on projects and remaining highly cautious amidst broader cost concerns.
Price pressures have not eased in a helpful way. The rate of input cost increases remains elevated, only slightly down from a recent 26-month peak. Firms continue facing higher prices for materials alongside escalating wage bills. Purchasing levels have dropped, and there’s no surprise in that. It’s clear that companies are trimming orders to manage costs and reduce overexposure to price shifts.
Short Term Positioning Considerations
Interestingly, business optimism did tick higher—not dramatically, but enough to notice. Expectations for the year ahead improved, especially in residential building, where hopes are pinned on a lift in demand. These forecasts, although just that, likely reflect tentative planning assumptions more than firm commitments. We interpret this as a sign that some developers may be contemplating reactivation of delayed projects, but only if economic visibility improves.
From a positioning angle, short-term sensitivity to input cost shifts and construction output figures will likely increase. Any fresh data on raw material prices or order books could have sharper-than-usual effects. Stronger-than-expected declines in commercial activity often result in steep recalibration of near-term margin outlooks. That said, resilience in housing could create short-term positioning opportunity where consensus has skewed too far towards pessimism.
We expect shorter-dated maturities to show increased reaction to inflation consequences stemming from wage growth and materials pricing, especially as supplier wage costs nudge higher and throughput remains restrained. Watch for faster propagation of these shifts into adjacent industrial components—it’s seldom confined when supply disciplines across sectors are this bound up.
Sentiment is not recovering in unison across segments. Rather, it’s the divergence between still-falling commercial momentum and tentative residential demand that could serve as an opening for directional assumption. Any updates indicating changes in public-sector contract timelines or reassessment of capital expenditure by large builders may prompt active adjustment.
In our view, paying close attention to forward-looking indicators—such as supplier delivery times or input price expectations—would be more informative than relying solely on output figures, which lag unfolding shifts in sentiment and supply. The direction from here will rest far less on backward-looking data and more on the early signs coming through procurement and expectations surveys. Modelling risk with wide cost margins remains advisable.
