The UK construction PMI for August was 45.5, slightly higher than the expected 45.0, according to S&P Global data. This shows a small recovery from July’s low, the worst in over five years. However, the number is still below 50.0, indicating ongoing contraction in the sector. Residential and civil engineering activities saw significant declines, though a slower drop in commercial building helped balance these losses. Some improvements in supply conditions, like shorter delivery times and more subcontractor availability, were mainly due to weak demand and a shortage of new projects.

Business Confidence Declines

Business confidence in the construction sector fell further in August. Only 34% of panelists expect an increase in output over the next year, down from 37% in July. This is the lowest level since December 2022, due to high uncertainty and worries about the UK economy. The slight rise in the August construction PMI to 45.5 is misleading, as the sector remains in contraction for the eighth consecutive month of 2025. This decline is reflected in reports from major UK housebuilders like Taylor Wimpey, which have noted slowing sales reservations this year. As a result, buying put options on a UK housebuilder ETF might be a good way to protect against or capitalize on further drops in residential construction. This ongoing downturn in construction is the longest since the disruptions of early 2020 and suggests a broader economic slowdown. UK GDP growth was nearly flat in the second quarter of 2025, amplifying worries that weakness will continue into the third quarter. Thus, it might be wise to take a bearish stance on the British Pound, perhaps by shorting GBP/USD futures or purchasing options that yield profit if the exchange rate falls below specific levels.

Interest Rate Expectations

The ongoing weakness makes a Bank of England interest rate hike unlikely in the near future, supporting the idea that the bank will maintain its pause that began in early 2024. This report also increases the chances of a rate cut later this year, a sentiment reflected in falling government bond yields. Traders could consider going long on UK Gilt futures, which would gain value if interest rates are cut. It’s important to note the differences within the report, as commercial building showed more resilience compared to the sharp downturn in housing. This may create pair trading opportunities for those with specific sector knowledge. For example, a trader might take a long position in a commercial property-focused company while shorting a residential housebuilder. Create your live VT Markets account and start trading now.

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