UK construction in longest downturn since early 2020
Ouch! Britain’s construction sector is suffering its longest continuous downturn since the early days of the Covid-19 pandemic.
Construction output slumped again in August, according to the latest poll of purchasing managers from data provider S&P Global.
Its construction PMI has found:
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Business activity falls for eighth month in a row, but at slower pace than in July
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Solid reductions in new work and employment
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Optimism drops to its lowest since December 2022
S&P Global says there was a “sustained downturn in UK construction output” in August, led by a “marked reductions in the housing and civil engineering segments”.
Civil engineering was the weakest-performing segment in August, with business activity decreasing at the fastest pace since October 2020. Housebuilding activity also fell, suggesting the government is strugging to hit its target to boost home construction.
Tim Moore, economics director at S&P Global Market Intelligence, said:
“Construction activity has decreased throughout the year-to-date, which is the longest continuous downturn since early-2020. August data signalled only a partial easing in the speed of decline after output fell at the fastest pace for over five years in July.
Sharply reduced levels of housing and civil engineering activity were again the main reasons for a weak overall construction sector performance. Commercial work showed some resilience in August, with the downturn the least marked for three months.
There were some positive signals on the supply side as vendors’ delivery times shortened, subcontractor availability improved and purchasing price inflation hit a ten-month low. However, easing supply conditions mostly reflected subdued demand and a lack of new projects.
Elevated business uncertainty and worries about broader prospects for the UK economy meant that construction sector optimism weakened in August. The proportion of panel members expecting a rise in output over the year ahead was 34%, down from 37% in July and lower than at any time since December 2022.”
Key events
US company job cuts jump in August
Job cuts at US companies has hit their highest August level since 2020, according to new data from outplacement and coaching firm Challenger, Gray & Christmas.
US-based employers announced 85,979 job cuts last month, which is 39% more than in July and 13% more than in August 2024.
This is another indication that the US labour market cooled over the summer….
August’s total was the highest for the month since 2020 when 115,762 job cuts were recorded. After 2020, it is the highest August total since the Great Recession in 2008, when 88,736 cuts were announced.
Andrew Challenger, senior vice president and labor expert for Challenger, Gray & Christmas, explains:
“After the impact of DOGE on the Federal Government, employers are citing economic and market factors as the driver of layoffs. We’ve also seen a spike in cuts due to operation or store closings and bankruptcies this year compared to last.”
The report also shows that companies have announced 892,362 job cuts so far this year, the highest YTD since 2020 when 1,963,458 were announced. It is up 66% from the 536,421 job cuts announced through the first eight months of last year and is up 17% from the 2024 full year total of 761,358.
The Bank of England is seeking advice on how to enhance the resilience the UK gilt repo market, and avoid throwing more fuel on a market crisis.
The gilt repo market allows banks to borrow money trhough a short-term borrowing arrangement (repurchase agreements, or ‘repo’), using government debt (‘gilts’) as collateral.
The dangers of sudden moves in the gilt market were exposed after Liz Truss’s mini-budget of 2022 – bond prices fell, leading to forced sales for liability-driven investment pensions funds (LDI funds), creating a doom loop.
The BoE is considering various measures that could prevent a meltdown, including potentially creating a central clearing counterparty (CCP) to handle repo deals between banks.
You can read more here.
The Bank explains:
The smooth functioning and resilience of government bond markets is fundamental to financial stability and the real economy. Given their role in financing government activity and as a benchmark for the pricing of other financial instruments, such as corporate bonds, government bond markets facilitate the provision of vital services, investment, and sustainable economic growth. Therefore, it is crucial to ensure that these markets are able to continue functioning during periods of stress and absorb, rather than amplify, shocks.
In turn, government bond repo markets are important to the resilience of government bond markets and, hence, to financial stability, given their role in facilitating the flow of cash and gilts across the financial system and as a source of funding for market participants’ leveraged strategies.
Amazon UK sales hit £29bn
Sarah Butler
Amazon has revealed that UK sales rose to £29bn last year, making it slightly larger than Asda, the UK’s third largest supermarket.
However, the pace of growth at the group, which operates cloud services and other digital systems for businesses alongside its retail arm, slowed to 7.4% in 2024 from 12.5% in the prior year.
The company now has 75,000 UK employees, about half that of Asda, and says it paid £1bn of UK taxes, up from £932m last year. However that includes business rates, corporation tax and national insurance contributions – and the company does not break down the figure.
The government has said it wants to revise the business rates system from next year so that online retail businesses such as Amazon pay more and the burden is eased on high street businesses. However, under its current plans, most large expensive buildings, including hospitals and some department stores and supermarkets will also pay more business rates – alongside the warehouses and offices used by online sellers.
Amazon’s UK Services arm is expected to release its full accounts next week. In 2023, the division paid £18.7m in “current tax” which is understood to have been largely corporation tax. It was the first time since 2020 the division had paid corporation tax.
The company received a £7.8m tax credit in 2022 and a £1.1m credit in 2021 after its investments in infrastructure.
In 2024, Amazon said it had invested £1.6bn in infrastructure in the UK, including new warehouses, but some of the tax breaks on that it enjoyed in prior years have now been unwound.
Goldman: Gold could approach $5,000/oz if Fed independence damaged
The gold price has dipped a little today, away from the record highs set during this week’s bond market turmoil.
Gold is trading at $3,540 per ounce this morning, down 0.5%, having yesterday hit a peak of $3,578.50 per ounce.
Goldman Sach’s baseline forecast is that gold hits $4,000 per ounce by mid-2016.
But in a note today, they predict it could rise much higher if the independence of the Federal Reserve is damaged, leading to higher inflation, lower stock and long-dated bond prices, and an erosion of the dollar’s reserve currency status, pushing more investors into gold.
Goldman’s analysts write:
Should private investors look to diversify more heavily into gold, as have central banks, we see potential upside to gold prices even above our tail risk scenario of $4,500/toz [troy ounce], which itself is already well above our $4,000 mid-2026 baseline, given the very small size of the physical gold ETF market relative to Treasury bonds, at only 1%.
For example, we estimate that if 1% of the privately owned US treasury market were to flow into gold, the gold price would rise to nearly $5,000/toz, assuming everything else constant. As a result, gold remains our highest-conviction long recommendation in the commodities space.
German institutes cut growth forecasts
We have disappointing economic news from Germany this morning too.
A group of top German economic institutes have trimmed their growth forecasts for 2025 and 2026, citing headwinds from the US trade war.
The Ifo institute now expects gross domestic product to expand by just 0.2% this year, a cut of 0.1 percentage point. Growth is expected to rise to 1.3% in 2026, a drop of 0.2 percentage points from its previous forecast.
The Kiel Institute for the World Economy made similar reductions, cutting its 2025 growth forecast to 0.1% from 0.3% in June. It now sees GDP rising 1.3% in 2026, down from 1.6% previously.
Over in the eurozone, retail sales have dropped again.
Retail sales growth in the euro area fell by 0.5% month-on-month in July, larger than the 0.2% fall expected.
Firms cut profit margins and jobs after national insurance rate rise
Two thirds of UK companies cut their proft margins in response to this year’s rise in employment taxes, new Bank of England data shows.
The BoE’s poll of ‘decision makers’ at UK firms has asked how they adjusted to the rise in employers’ national insurance rates, which kicked in at the start of April.
Firms were allowed to select more than one option. 66% of firms reported lowering profit margins, 34% raising prices, 46% lowering employment and 20% paying lower wages than they otherwise would have done, the Bank says.
Construction slump: what the experts say
Overall, the S&P Global UK Construction Purchasing Managers’ Index rose to 45.5 in August, up from 44.3 in July (which was the lowest reading for just over five years).
That’s still below the 50-point mark separating expansion from contraction.
Here’s some expert reaction:
Max Jones, director of infrastructure and construction at Lloyds, says:
“Civil engineering and public infrastructure projects have helped to balance softer demand elsewhere in the market, and there have been some notable examples of commercial projects moving ahead, helping to bring some stability to pipelines.
“Although firms are still facing relatively high materials prices, overall cost pressures have eased compared to earlier in the year, supporting hopes that momentum could build as we enter Autumn.”
Huda As’ad, Accenture’s infrastructure and capital projects lead in the UK and Ireland, says:
“The construction sector has been hit by persistent cost pressures and ongoing operational challenges throughout the year, with housing and civil engineering particularly hard hit.
While recent government initiatives, including the new National Infrastructure and Construction Pipeline and the Great British Energy Act, are shaping a stronger long-term framework – it will take time for benefits to filter through. To navigate uncertainty, the industry should focus on making their supply chains more resilient by adopting modern building methods and digitising operations. The construction sector has the opportunity to power the UK’s economic recovery, but it requires decisive action.”
And here’s Brian Smith, head of cost management at engineering company AECOM:
“An increase in August’s activity, despite remaining below the 50.0 mark, paints a more encouraging picture for the sector. However, even as the pace of decline has eased, firms will be looking for a longer-term stabilisation in new orders before adding capacity to their books.
“In this environment, contractors should keep a tight grip on cash flow and costs, act early if challenges emerge, and remain realistic about risks so they are not caught off guard if market conditions deteriorate. The government’s return from recess will be key as it looks to implement a new 10-year infrastructure plan, backed by £725 billion of public investment.
However, ambition alone won’t be enough. Unlocking projects, accelerating delivery and providing the certainty required for long-term planning will only be possible if the public and private sectors work in partnership to convert investment into tangible outcomes that reshape the UK’s economic and social landscape.”
Employment across the construction sector has also fallen, today’s PMI report shows, as building firms implement hiring freezes and decide not to replace departing staff,
S&P Global explains:
Employment numbers have fallen throughout 2025 to date and the latest reduction was the fastest since May.
A number of firms commented on efforts to mitigate rising payroll costs by cutting back on recruitment. Subcontractor usage also decreased markedly in August and at one of the fastest rates seen over the past five years.
UK construction firms have been hit by a lack of new projects, S&P Global reports.
That led to a solid reduction in purchasing activity across the construction sector.
