Construction Market Overview: March 2025
A monthly round up of key Construction Market Data and Forecasts including statistics from industry commentators and influencers.
Construction output contracts in early 2025 amid challenging conditions, whilst cautious optimism remains
The ONS have published their construction output data for January 2025, showing Construction output fell by 0.2% in January, following a 0.2% decline in December, driven entirely by a 0.7% fall in new work, whilst repair and maintenance saw a modest 0.4% rise. Adverse weather conditions, including heavy rain and storms, were cited as contributing factors. Alongside this, private commercial and private housing new work fell sharply by 6.1% and 1.8%, respectively. However, over the three months to January 2025, construction output grew by 0.4%, mainly due to a 1.4% rise in new work, and coming solely from the 0.6% increase in construction growth seen in November 2024.
In February, UK construction activity saw a sharp downturn, with the S&P Global UK Construction PMI® falling to 44.6 from 48.1 seen in January, marking the lowest level in nearly five years and the fastest decline since May 2020. Residential housebuilding was the weakest-performing segment, falling for a fifth consecutive month, followed closely by a sharp decline in civil engineering activity, reflecting weak demand, elevated borrowing costs, and fewer new projects. New work and input buying fell at the fastest rate in almost five years, amid delayed client decision-making, squeezed budgets, and subdued economic confidence. Rising input costs, including materials, energy, and wages, added to pressures, marking the sharpest increase in business expenses since March 2023. Despite these challenges, 39% of surveyed firms remained optimistic about growth in the year ahead, hoping for an easing in borrowing costs and improved market conditions.
The RIBA Future Trends Survey for February 2025, shows a return to optimism among UK architects, with the Workload Index rising to +5, following January’s figure of -2, and marking the first positive figure in four months. 29% of practices expect workloads to grow over the next three months, while 24% anticipate a decline. Outlook has improved across all regions except one, with London showing the highest optimism. The residential and commercial sectors have turned positive, with the housing index reaching its highest point since mid-2022. However, despite the improved sentiment, practices continue to face challenges including client hesitancy, interest rate pressures, planning delays, and rising regulatory and tax burdens.
The DBT construction material price index for all work decreased 0.2% month-on-month in January 2025 and decreased 0.9% compared to a year earlier. Construction material prices for new housing increased 1.0%, with repair and maintenance also increasing 1.0% and other new work falling by 2.2% in the year to January 2025.
UK housing market holds steady in early 2025 as transactions and prices stabilise
The HMRC report that in January the number of property transactions in the UK totalled 95,110, 1.0% lower than the 96,330 seen in December 2024, and 14.4% higher than a year earlier, although this is compared with a low base in in winter 2023/24. Overall, excluding recent distortions in the housing market transactions are broadly back to pre-pandemic levels in January 2020. Alongside this, the Bank of England report that in January, the number of mortgages approved for house purchase was 66,189, which is 0.5% lower than December 2024 and 18.3% higher than a year earlier, despite approvals being broadly flat since August 2024.
Nationwide report that in February 2025, UK house prices increased by just 0.4% compared to January, marking the sixth consecutive monthly rise. Annual growth eased to +3.9%, from the +4.1% seen in January indicating that house price growth remains broadly stable in the early part of the year. And Halifax report that in February 2025, UK house prices decreased 0.1% compared to the increase of 0.6% seen in January but still remains stable as annual house price growth is unchanged for February at +2.9%. While house price growth has slowed overall, market activity remains strong and comparable to pre-pandemic levels. And looking ahead, the changes to stamp duty at the start of April are likely to lead to a jump in transactions in March, and a corresponding period of weakness in the following months.
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