According to the latest Glenigan Index data, which tracks construction starts under £100m, construction performance weakened further in Q2, dashing hopes of recovery in H.2 2026.
The July Index depicts a sector that remains stuck amid weak economic growth and geopolitical uncertainty; as one pressure releases, another bears down upon it, stifling a return to growth.
Falling further into the mire, Glenigan data reveals a spiralling decline throughout Q2; the value of starts on site fell 15% during this period, to finish languishing in a 38% slump compared to 2025 levels.
With continued instability abroad and a government in transition at home, there seems little sign of immediate relief. The knock-on effects are being acutely felt across almost every residential and non-residential vertical, where rocketing prices, finite resources and a barely dripping investment tap have caused a general sense of malaise, leading to inevitable stagnation.
This
combination of uncertainty and inactivity is reflected in Glenigan’s
recent Summer Forecast, which revised down its Autumn 2025 prediction of
recovery this year, pushing it back to 2027, with 2026 now set to
finish in the red.
Bright
spots were few and far between, with some signs of life seen in office
construction, which has continued to buck the overall downturn. Gains
were also observed in education and healthcare, yet these were
relatively modest when compared to last year’s performance, against
which they barely scratched the surface.
Commenting
on the July Index, Allan Wilen, Glenigan’s Economic Director says, “In
another perfect storm for the UK construction sector, a sharp decline in
residential projects led the sector decline during the second quarter.
This drop reflects the impact of the Iran War on consumer confidence,
with developers adjusting their development programmes in response to a
slowing housing market. Non-residential construction is more stable,
with an upturn in office, health and education projects offsetting
weakness in other sectors. However, the impending change of Prime
Minister will add to uncertainty near term and could disrupt the
roll-out of departmental investment programmes. There’s still a mountain
to climb before we reach the sunny uplands of universal recovery.”
Adopting
a more sanguine tone, he adds, “Whilst this year will end in negative
numbers, our forecasting predicts that we will see a return to growth
next year as economic conditions improve, alongside an easing in
inflationary pressures and interest rates, and as funding from the
Spending Review grows. So, whilst the current picture is unclear, we
should expect to see, at least, some bottoming out and revival in Q.4,
heralding a larger uptick in 2027.”
Sector Analysis – Residential
Unfortunately,
residential starts experienced yet another very disappointing Index
period, with performance falling by almost a third (-31%) and project
values slashed in half compared to 2025 levels.
Drilling
down into these poor results, private housing was the principal driver
of this decline; with the ongoing stagnation likely due to high (if
currently held) interest rates, denting buyer appetite. Furthermore,
rising labour and material costs are making developers hesitant to
commit shovels to ground until the market stabilises. Starts dropped 40%
compared with the preceding three months, finishing an eye-watering 63%
lower than a year ago.
Less
severely, social housing also contracted, with rising materials costs
and a backlog of delayed projects hampering progress. This led to starts
falling 11% against the preceding three months and declining 18%
year-on-year.
Sector Analysis – Non-Residential
For the non-residential verticals, it was a mixed bag, performance-wise.
Once
again, office construction experienced the strongest growth, soaring
51% against the preceding three months and standing 8% above last year's
level. Overall sector growth was supported by the £99 million West One development in London.
Public
sector verticals also posted relatively strong results. Education
delivered some impressive figures, registering increases of 17% during
the Index period, leaping 7% year-on-year. Particularly, the £49.7
million Mercia and Newhall Schools development in Derbyshire helped
drive growth, with more activity promised as the Schools Rebuilding
Programme continues to deliver a raft of renovation and refurbishment.
Spurred
on by another Government spending commitment, the New Hospitals
Programme, health activity rose modestly, increasing 2% against the
preceding three months. However, there is still significant ground to
make up on the road to recovery, with project starts remaining 28% lower
than a year ago.
Further
indicating the distinct lack of consumer confidence, both at home and
abroad, industrial, hotel & leisure and retail all shared poor
results.
Industrial
starts continued to decline, falling 15% during Q.2 to stand 29% under
2025 figures. It was also a troubled time for hotel & leisure
activity, which dropped 14% against the preceding three months and by
42% year-on-year. Retail also weakened, falling 27% compared with the
preceding three months and standing 9% below the previous year.
Sector Analysis – Civils
Continuing
to struggle under the burden of soaring costs, labour shortages,
project delays and fragile funding commitments, civil engineering work
starting on-site declined 19% against the preceding three months,
falling 45% compared with the previous year.
Taking
a closer look, a dearth of infrastructure starts was the main culprit,
falling 28% against the preceding three months to finish 51% lower than
in 2025. Similarly, utilities declined 7% quarter-on-quarter and were
36% below last year's level.
Regional Outlook
Taking
the top spot, the West Midlands recorded the strongest regional
performance, rising 59% against the preceding three months, although
activity remained 14% below the previous year.
The
South West also registered growth during the Index period, rising 10%
quarter-on-quarter, but activity was still 55% lower than a year
earlier. On the flip side, Northern Ireland declined 18% against the
preceding three months but remained 8% above last year's level.
Despite
posting a loss, The South East proved relatively resilient, falling
only 5% against the preceding three months, though remaining 42% below
the previous year.
Surprisingly,
London, which had posted some robust results over Q.2, experienced a
weaker period, declining 15% quarter-on-quarter, down by a fifth (-22%)
on last year's level.
Elsewhere,
it was a gloomy picture of decline as socioeconomic hardship continues
to bite. The North East declined 16% against the preceding three months
and was 37% below last year. Scotland fell 28% quarter-on-quarter and
49% year-on-year. Yorkshire fell 8% against the preceding three months
and stood 45% below the previous year.
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