UK Construction Downturn Eases as September PMI Rises, but Housebuilding Remains Under Pressure

The S&P Global UK Construction Purchasing Managers' Index rose from 44.3 in August to 46.1 in September, marking the strongest reading since January 2026.

A PMI reading below 50 indicates contraction, while a reading above 50 indicates expansion. The September figure therefore shows that construction activity was still declining, but at a slower rate.

The downturn is easing, but it has not ended

The improvement from 44.3 to 46.1 is encouraging, but it would be premature to describe the construction sector as having returned to growth.

The industry has remained below the 50 threshold for an extended period.

September's result instead suggests that the pace of deterioration has moderated.

For construction businesses, developers and investors, this distinction is important.

An easing downturn can be the first stage of stabilisation, but it does not necessarily mean that demand has recovered strongly.

Housebuilding remains the weakest area

Housing construction continues to face particularly difficult conditions.

The September housing activity index was reported at 40.7, making housebuilding the weakest of the major construction segments.

Higher borrowing costs and difficult market conditions continued to weigh on residential construction.

This is significant because the housing sector is particularly sensitive to mortgage affordability.

When buyers find it harder to obtain or afford mortgages, developers can experience slower sales rates.

That can influence the number of new developments that developers are willing to start.

Commercial construction performs better

Commercial construction was comparatively resilient.

The commercial activity index reached 48.5, indicating that the sector was close to stabilisation even though it remained below the 50 threshold.

The improvement across the sector suggests that weakness is not uniform.

Different construction segments are responding differently to borrowing costs, demand conditions and business confidence.

Why does the construction PMI matter?

The construction PMI is a closely watched indicator because it provides an early view of activity in the sector.

Unlike official statistics that can take longer to compile, PMI surveys provide an indication of business conditions relatively quickly.

For property professionals, this can provide an early warning of changes in:

• Construction activity

• New work

• Business confidence

• Employment

• Input costs

• Project pipelines

The September improvement is therefore worth monitoring even though the headline remains negative.

Borrowing costs remain a major obstacle

The construction sector's performance is particularly relevant given the current interest-rate environment.

The average five-year fixed residential mortgage rate reached 6% in early October, while the two-year average stood at 5.98%.

For developers, higher financing costs can affect both the cost of construction finance and the expected demand for completed properties.

A project that looked financially viable when funding costs were lower may require a different land price, sales assumption or construction strategy under current conditions.

What could happen next?

The key question is whether the September improvement continues.

A sustained rise toward 50 would provide stronger evidence that the downturn is losing momentum.

A move above 50 would indicate that construction activity is expanding again.

However, the housing component will be particularly important.

If housebuilding remains substantially weaker than commercial construction, the overall recovery could remain uneven.

Implications for developers

Developers should continue to stress-test projects against:

• Higher interest costs

• Longer sales periods

• Construction inflation

• Labour costs

• Material prices

• Planning delays

• Lower buyer affordability

The current environment rewards developments with strong fundamentals and realistic financial assumptions.

Implications for housing supply

Weak housebuilding activity can have consequences beyond individual developers.

If fewer projects begin construction, the future pipeline of new homes can shrink.

That could eventually increase pressure on existing housing stock, particularly in areas where demand remains strong.

This makes the government's efforts to improve development finance particularly relevant.

On 6 October, the British Business Bank announced a £350 million ENABLE Build guarantee facility with Shawbrook intended to increase finance available to smaller housebuilders.

A cautious improvement

September's construction PMI provides a reason for cautious optimism.

The sector is no longer deteriorating as quickly as it was earlier in the year, but the industry remains in contraction.

The next few PMI readings will be important in determining whether September represents the beginning of a genuine recovery or simply a temporary improvement.

For the property industry, the strongest signal would be a sustained recovery in housebuilding alongside improved buyer affordability and development finance conditions.

Sources: S&P Global UK Construction PMI data as reported for September 2026.

Disclaimer: PMI data is an economic indicator and does not predict the performance of any individual construction company or development.