The latest data released through March 2026 suggests that while the UK construction sector remains under pressure, the pace of decline is beginning to ease. Activity levels are still subdued, particularly in housing, but several indicators now point towards a market that is stabilising rather than continuing to weaken.
Construction output: decline continues, but January shows early signs of stabilisation
The most recent ONS construction output release, covering January 2026, confirms that activity remains weak across the sector. Total construction output fell by 2.0% in the three months to January, marking a fourth consecutive decline on this measure. This was driven primarily by new work, which declined by 3.2%, with private housing again acting as the largest drag, falling by 6.3%.
However, the monthly data provides a more nuanced picture. Output increased by 0.2% in January itself, supported by a 3.3% rise in repair and maintenance, while new work declined by 2.0%. Although modest, this shift suggests that the market may be starting to find a floor after a prolonged period of contraction.
Construction PMI: activity remains weak, but confidence reaches highest level since 2024
The latest S&P Global UK Construction PMI, released in early March, indicates that activity remains firmly in contraction territory. The headline index fell to 44.5 in February, down from 46.4 in January.
Housebuilding remains the weakest-performing segment, with a reading of 37.0, while commercial activity at 46.5 and civil engineering at 41.0 show less severe declines. Importantly, civil engineering recorded its slowest rate of contraction since late 2025, suggesting some stabilisation in infrastructure-related work.
More encouragingly, forward-looking sentiment improved. A significantly higher proportion of firms now expect output to rise over the next twelve months, with overall confidence reaching its highest level since December 2024. This divergence between current workloads and future expectations is one of the clearest indicators that the sector is transitioning into a stabilisation phase.
Housebuilding: current activity remains weak, but registrations signal improving intent
Housing continues to be the most challenging segment of the construction market. Both ONS output data and PMI readings confirm that residential activity remains in decline, reflecting ongoing affordability pressures, elevated borrowing costs and cautious developer sentiment.
However, leading indicators are beginning to improve. The NHBC reported that new home registrations exceeded 115,000 in 2025, an increase of 11% year on year, suggesting that developer intent is recovering. While this has yet to translate into increased on-site activity, it provides a stronger foundation for a gradual recovery in housebuilding through the latter part of 2026.
Planning reform: new local plan system introduced in March 2026
A key development this month is the government’s confirmation that the new local plan-making system will come into force from late March 2026. This introduces a revised framework intended to accelerate plan preparation and improve consistency across local authorities.
While the immediate impact on construction output will be limited, the reform is significant in addressing long-standing structural constraints within the planning system. With a relatively low proportion of authorities currently operating with up-to-date local plans, improvements in plan-making processes are expected to support housing delivery over the medium term.
Materials and supply chain: demand remains subdued as cost pressures re-emerge
Across the supply chain, demand conditions remain relatively weak, particularly in housing-led product categories. Data on construction materials indicates that volumes for key products such as bricks and blocks remain below previous-year levels, reflecting subdued activity in residential construction.
At the same time, cost pressures are beginning to return. The PMI highlights a renewed increase in input costs, with firms reporting higher prices for materials including steel, concrete and insulation. This combination of weak demand and rising costs continues to place pressure on margins across both contracting and manufacturing businesses.
Market conditions: insolvencies remain elevated as pressures persist
The wider operating environment continues to present challenges. Construction remains one of the sectors most affected by business insolvencies, reflecting the cumulative impact of several years of cost inflation, margin compression and subdued workloads.
While there are some indications that labour market pressures are stabilising, overall business conditions remain tight. Firms are continuing to manage rising costs alongside uncertain demand, contributing to a cautious outlook despite improving sentiment indicators.
Final thoughts from Leading Edge
The March data does not yet point to recovery, but it does suggest that the sector is moving into a more stable phase. The sharp declines seen through 2024 and early 2025 are no longer accelerating, and several forward-looking indicators are beginning to improve.
The market remains uneven, with housing continuing to underperform, but infrastructure, elements of commercial work and parts of the repair and maintenance sector are providing a degree of resilience.
For manufacturers and suppliers, this is a market where understanding differences between sectors is increasingly important. Headline figures continue to reflect overall weakness, but beneath that, the direction of travel is becoming clearer.
At Leading Edge, our work across construction and building products consistently shows that markets do not recover uniformly. Identifying where demand is beginning to stabilise — and where it is not — remains critical to navigating the year ahead.
Sources: ONS; S&P Global / CIPS; NHBC; UK Government planning updates; CLC / Experian; industry supply chain data
Written by the Leading Edge team – 21st March 2026
