Steep declines in housebuilding and engineering work have plunged the UK’s construction sector to its lowest level of activity since May 2020, according to a survey of building companies.

After one of the steepest monthly declines in housebuilding activity, the latest S&P Global construction purchasing managers’ index (PMI) slumped to 44.6 in February – a sharp drop from 48.1 in January.

Most economists had expected activity to rebound to 49.7 in February, just below the 50 mark that separates growth and contraction.

S&P said residential building work, which lies at the heart of the government’s growth agenda, suffered a dramatic slump. The index for residential building sank to 39.3 – the fifth decrease in a row – and the weakest-performing area of construction activity in February on record.

“Aside from the pandemic, the rate of decline was the fastest since early 2009,” the data compiler said. “Survey respondents often cited weak demand conditions, headwinds from elevated borrowing costs and a lack of new work to replace completed projects.”

The government wants housebuilders to construct 1.5m homes by the end of the parliament. Many of the UK’s largest housebuilders welcomed plans by Labour ministers to speed up applications for new private housing estates and push ahead with plans for new towns in a boost to the sector’s prospects.

Last year the construction industry data provider Glenigan said many schemes were under way and predicted a 13% increase in private housing starts in 2025.

It said private housing projects jumped by 31% from November 2024 to the end of January this year, signalling a resurgence in building under the Labour government.

Official figures showed housing starts rose by 10.9% overall to 37,030 in the UK in the fourth quarter of 2024 compared with the previous quarter.

However, Glenigan reported a slowdown across several sectors in February, in line with the S&P survey. Figures this week showed project starts in the leisure and office sectors were being mothballed as the construction sector waited for clarity on spending plans. Meanwhile, uncertainty over public spending on infrastructure and the location of new housing has also slowed activity.

The firm said the number of homes given planning permission in England last year fell to 242,610 – down 2% from the year before and the lowest since 2014.

While the data shows permissions picked up in the final quarter of the year, permissions will need to rise by 53% to hit the 370,000 target outlined in Labour’s national planning policy.

A study by Building magazine in December 2024 found that the average operating profit made from housebuilding activities in the UK had fallen by 36% in 2024 from the previous year. The fall translated into a drop in pre-tax profits of 31%, the research found.

Tim Moore, the economics director at S&P Global Market Intelligence, said: “Sharply declining order books rippled through the UK construction sector in February, which led to accelerated reductions in output volumes, employment and input buying.

“Weak demand conditions were attributed to entrenched caution among clients, against a backdrop of subdued consumer confidence and lacklustre economic performance.”

Matt Swannell, the chief economic adviser to the EY Item Club, said the PMI may be overstating the fall in activity.

“The decline may reflect changes in business sentiment rather than a genuine shift in activity.”

He said the consumer would come to the rescue as an expanding economy, lower interest rates and steady wages growth increased demand for homes, offsetting tighter government spending.