Insights 
VT 
The UK construction sector’s PMI for June reported a figure of 48.8, slightly above the expected 48.4. This represents the sixth consecutive month of declining activity, though the rate of decline was slower than before.
New orders continue to fall at a faster rate, causing business optimism to reach its lowest point in two-and-a-half years. While commercial activity declined at the sharpest rate in over five years, house building showed positive momentum. Residential work improved for the first time since September 2024, indicating some stability in demand.
Indicators Of Economic Conditions
Forward-looking indicators fell compared to May, with new orders declining more rapidly. This is attributed to challenging domestic economic conditions and weak client confidence. Business activity expectations also hit a two-and-a-half-year low, with firms encountering fewer tender opportunities.
There is increased competition for new work, and anticipated difficulties arise from subdued investment through the year. These factors collectively paint a challenging outlook for the construction industry in the near term.
These latest survey findings suggest the sector is facing a testing period. While the headline figure did come in slightly higher than forecast, it still sat comfortably below the neutral 50 mark — a reading that generally separates growth from contraction. This means that the overall activity across construction firms is still in decline, albeit not as rapidly as in recent months.
What raised eyebrows was the renewed pressure on project pipelines. There was a steeper drop in new work, which is often the clearest forward signal we have about what lies ahead. For those of us watching market-sensitive sectors closely, that continued weakness in new business tells a straightforward story: there’s little confidence among clients to commit capital, and that’s feeding into a gloomier outlook at firm level. The optimism measure touched its lowest since late 2021, not because of any one-off event, but because of broad fatigue in demand.
Competition And Pricing Implications
Most traders would have noted where the pressure is coming from — commercial projects are being dialled back heavily. That’s the part that has fallen the most sharply in five years. Developers are walking back plans, pausing bids, or holding off entirely. In contrast, house-builders offered a glimmer. Residential work picked up. Not by much, but enough to register positive movement — the first in nine months. That subtle uptick might help offset broader weakness across the building space, though it’s not enough to lift the whole sector.
Looking at the internals, what stands out to us is the drop in tender opportunities. That usually means fewer chances for construction firms to bid for work, which often translates into lower volumes in the medium term. Lower volume contracts breed stiffer competition, and when everyone starts chasing fewer projects, pricing layers thin out. Firms cut margins, or they risk losing the work altogether. It’s not just an operating pressure — it has direct pricing implications.
The response at the trading desk should be tied to pricing-in prolonged pressure across input channels and tender quote revisions. With sentiment at lows, risk appetite from clients is not going to switch around overnight. We expect this to spill over into materials demand. If new contracts don’t flow, upstream procurement activity remains sluggish. That in turn could put mild downward pressure on select materials markets, especially those heavily tied to non-residential building work.
There’s also a read-through on labour dynamics. With fewer starts expected and greater uncertainty on contracts being awarded, certain labour-intensive segments may appear ripe for softer wage pressure, especially where subcontractors operate. That has an auxiliary effect on wage-based expectations embedded in some price derivatives.
One area we are watching closely is whether this competitive squeeze spills over into longer completion horizons. If firms are thinning their resources or spreading staff across leaner job volumes, timelines could stretch. That rarely plays well for project-based revenues — it increases overhang risk, especially in multi-phase builds. From a positioning standpoint, it’s worth tempering exposure to cyclical suppliers over the next two to three earnings periods.
The broader point here is that while one or two line items have stabilised, the survey as a whole suggests no gained ground. Longer-term flow-through will depend less on sentiment and more on whether macroeconomic borrowing conditions loosen. Until then, pressure remains concentrated in commercial construction, with only modest help from housing.
