UK construction sector sees sharp rebound as lockdown eases
By Abigail Townsend
Date: Monday 06 Jul 2020
(Sharecast News) - The UK construction sector gathered pace in June, as lockdown restrictions eased and output surged, according to a closely-watched survey published on Monday.
The IHS Markit CIPS UK construction PMI total activity index surged to 55.3 in June from 28.9 in May. It was the steepest expansion since July 2018 and well above consensus for a reading of 46.0. Any reading above 50.0 indicates growth.
The increase was attributed to the phased restart of work on construction sites, which boosted both output volumes and business confidence, and supply chains reopening.
The best-performing sector was residential, with 46% of survey respondents seeing an increase in housing activity, and only 27% experiencing a reduction. It was the steepest expansion for nearly five ears.
Overall, the housing activity index printed at 59.0 compared to 30.9 a month previously, while the commercial index was 53.8 and civil engineering 52.4.
Employment numbers fell at the end of the second quarter, however, with respondents pointing to concerns about long-term demand. Despite that, the index measuring business expectations for the year ahead rose, with 46% now anticipating a jump in activity.
Tim Moore, economics director at IHS Markit, said: "As the first major part of the UK economy to begin a phased return to work, the strong rebound in construction activity provides hope to other sectors that have suffered through the lockdown period.
"While it has taken time for the construction supply chain to adapt and rebuild capacity after widespread business closure, there is now clear evidence that a return to growth that has been achieved."
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "As business confidence improved to its largest extent since February, companies were buying up materials and laying the ground work for a stronger summers end. This resulted in the highest input price inflation since the start of the year, as supply chains creaked under the strain of increased shortages.
"There are still some potholes to navigate as government support for jobs is stripped away. Employment levels remain deflated, with reports of redundancies, furloughed staff and a reluctance to boost staff numbers when new order levels remained so flat. But with a significant rise in the headline output number, it looks as though all the building blocks are there for the sector's increasing health."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The new orders balance rose only to 50.4, from 25.4, and the employment index increased merely to 41.5, from 31.2, suggesting that construction firms are preparing for demand to remain well below pre-Covid levels later this year.
"The recovery in construction activity should be stronger than after the 200808 recession, given that banks are better placed to supply credit through the recovery, and public sector investment will be increased, not squeezed. Nonetheless, a full V-shaped recovery is not on the cards given that the future occupancy rates of office and retail space are highly uncertain."
Pantheon is predicting construction output to be about 5% below its pre-Covid level in the fourth quarter.
Gareth Belsham, director of surveyors Naismiths, said: "No-on should be complacent, and it's still too early to talk of green shoots. Job losses are still picking up and many construction firms are juggling the awkward question of whether the current relief rally is enough to justify taking back furloughed workers, let alone hire new ones.
"The prime minister's 'build build build' slogan so far means little on the ground, where construction firms are busy battling the pandemic's fallout. Shortages of materials are forcing up input costs and social distancing rules are squeezing productivity levels."
Email this article to a friend
or share it with one of these popular networks:
You are here: news
10 Lower Thames St,
London EC3R 6EN