Construction output fell at its fastest pace for six years during May as house building activity declined and contractors faced the sharpest materials inflation since 2022.

Latest data from the S&P Global UK Construction Purchasing Managers’ Index (PMI) also said shrinking order books and rising economic uncertainty contributed to another steep decline in UK construction activity last month.

At 38.2 in May, down from 39.7 in April, the PMI – an index tracking changes in total industry activity – posted well below the neutral 50.0 threshold for the 17th month running. Plus, the rate of contraction was the steepest since May 2020. Aside from the drop in construction output at the start of the pandemic, the latest fall was the fastest since March 2009.

All three broad categories of construction work posted sharp declines in output levels during May. Residential activity (index at 36.0) was the weakest-performing segment, with survey respondents commenting on unfavourable market conditions and headwinds from elevated borrowing costs.

Commercial construction (39.0) also saw a steeper reduction in output levels in May, reflecting risk aversion among clients in response to geopolitical tensions and rising inflationary pressures. Meanwhile, civil engineering work fell at a slightly less marked rate than in April (36.2).

Total new orders across the construction sector decreased at a sharp and accelerated pace in May. Mirroring the trend for output levels, the downturn in new business intakes was the fastest for six years.

Construction companies suggested that project delays, deferred investment decisions and general cutbacks to clients' budgets had all resulted in fewer tender opportunities. Some firms suggested that domestic political uncertainty had also impacted demand conditions in May.

However, there were reports that forthcoming energy sector and power networks projects were a bright spot for new infrastructure work.

A lack of new orders to replace completed projects resulted in lower employment numbers and another sharp drop in input buying during May.

Business activity expectations for the next 12 months remained positive in May, but the degree of optimism eased to the second-lowest since December 2022. Around 31% of the survey panel predict a rise in output levels during the year ahead, while 25% forecast a reduction.

Tim Moore, economics Director at S&P Global Market Intelligence, said: “Anecdotal evidence suggested that economic uncertainty and rising inflation in the wake of the Middle East conflict had triggered the steepest drop in new work since the beginning of the pandemic. Elevated borrowing costs were also reported to have impacted market conditions.

“Fuel surcharges and rapid increases in prices for energy-intensive raw materials continued to be felt across the construction supply chain. Overall purchasing costs rose to the greatest extent since June 2022, while international shipping delays meant that suppliers' delivery times lengthened for the third month running.”

Brian Smith, head of cost management at AECOM, said: “May is typically a month of optimism, as warmer, drier weather accelerates project starts in perfect building weather. But the mood in the sector is positively frosty as conflicts and geopolitical tensions dampen the UK economy.

“Contractors’ short-term goal will be damage control. This will mean being hawkish on the projects they take on, ensuring there’s capacity when opportunities do arise and embracing AI and digital tools to boost efficiency.

“The long-term pipeline will rely on interest rates holding steady and the government standing firm on its commitment to infrastructure delivery. In this respect, it’s encouraging to see the government exploring how it can work in collaboration with the private sector to make sure that funding reaches the projects that need it most.”