UK and Eurozone construction sector contraction

The construction sector in the United Kingdom and the Eurozone has faced sustained contraction and financial instability. In the UK, while the total number of company insolvencies in the construction industry declined in the 12 months leading to July 2026, the sector still accounted for 17% of all industry insolvencies. Experts attributed vulnerability to rising labor and material costs, fixed-price contracts, and poor payment terms.

By August 2026, construction activity continued to decline. The UK construction Purchasing Managers Index (PMI) fell to 44.3, marking 20 consecutive months of contraction, largely due to weakness in the residential segment. Similarly, the Eurozone construction PMI dropped to 43.0, representing 52 consecutive months of contraction. This regional downturn was driven by significant slowdowns in France and Italy, despite a slight increase in Germany.

In September 2026, data indicated a persistent slump in UK activity, particularly in housing. Analysis from Glenigan showed that construction starts for projects valued under £100m fell by 20% year-on-year in the three months leading to August 31. Residential construction starts specifically dropped 36% compared to the previous year, with private housing declining by 37% and social housing by 30%.

While the rate of decline may be leveling off, the broader sector is described by experts as “treading water” due to high borrowing costs, slow planning approvals, and economic uncertainty regarding the upcoming Autumn Budget. Contributing factors to the residential slump include weak house sales, high building costs, and the upcoming building safety levy.