The UK construction sector experienced a significant contraction in July, marking the steepest decline in activity in over five years. This downturn raises concerns about the government's ability to meet its ambitious housebuilding targets. Simultaneously, in a separate development, the United States has imposed an additional 25% tariff on goods from India in response to New Delhi's continued purchase of Russian oil.
UK Construction Sector Downturn
The S&P Global UK Construction Purchasing Managers' Index (PMI) fell to 44.3 in July, a considerable drop from 48.8 in June. A PMI below 50 indicates contraction, and July's figure represents the sharpest contraction since May 2020. This contraction was unexpected, as expectations were for a slight increase to 49.2.
All three monitored sub-sectors experienced marked decreases in activity, with residential building facing a fresh and sharp drop. Civil engineering projects also saw an accelerated fall in work. Commercial construction, while still contracting, fared slightly better than the other two sectors.
Construction firms cited several reasons for the slump, including site delays, lower volumes of incoming new business, and weaker customer confidence. This hesitancy from customers to commit to projects, along with broader domestic and international uncertainty, is hindering investment appetites.
In response to the falling activity, construction firms are reducing their staff numbers. The downward trend in payroll numbers continued into July, marking seven consecutive months of falling employment. Companies reported layoffs, recruitment freezes, and the non-replacement of departing employees. They are also cutting back on their use of subcontractors.
This contraction poses a challenge to the UK government's goal of building 1.5 million new homes by 2029. Achieving this target would require a pace of construction not seen since 1970. While the government has introduced planning reforms and eased borrowing rules to support housebuilding, project pipelines are lagging, and worker numbers are declining, making it difficult to translate policy ambitions into tangible results.
US Imposes Additional Tariff on India
US President Donald Trump signed an executive order imposing an additional 25% tariff on goods from India. This decision is a response to India's continued purchase of Russian oil, which the White House believes is helping to fund Russia's war in Ukraine.
The new tariff will take effect 21 days from the order's signing; however, goods already in transit and cleared before September 17, 2025, will be exempt.
The move comes shortly after President Trump stated his intention to raise tariffs on India "very substantially" because of its purchase of Russian oil.
