UK construction downturn eases slightly but Covid-19 still weighs heavily
By Abigail Townsend
Date: Thursday 04 Jun 2020
(Sharecast News) - The downturn in the UK construction sector eased last month as sites started to reopen, according to a survey released on Thursday, although output remained at record lows.
The IHS Markit CIPS UK Construction Total Activity Index was 28.9 in May, the second-lowest since February 2009 and well below the neutral 50.0 point. Anything above that signals growth, anything below indicates contraction.
It was, however, a marked improvement on April's historic low of 8.2.
The construction sector has been hit hard by the Covid-19 pandemic, with the lockdown closing sites and companies across the supply chain temporarily shutting down and furloughing staff.
Across the three sub-sectors, residential work proved the most resilient in May, with a PMI of 30.9. Civil engineering was 28.6 and commercial building was 26.2.
Around 64% of those questioned said output dropped during May and 21% said it expanded.
Tim Moore, economics director at IHS Markit, said: "A gradual restart of work on site helped to alleviate the downturn in total UK construction output during May, but the latest survey highlighted that ongoing business closures and disruptions across the supply chain held back the extent of the recovery.
"It seems likely that construction activity will rebound in the near-term, as adaptions to social distancing measures because more widespread and the staggered return to work takes effect.
"However, latest PMI data painted to another steep reduction in new orders received by UK construction companies, with the pace of decline exceeding the equivalent measures seen in the manufacturing and service sectors."
Looking ahead, respondents remained downbeat about the next 12 months, with sentiment holding close to April's low.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "Spending was slashed as clients continued to stonewall building firms and put new projects hold. With furloughed staff across the supply chain, companies saw their capacity leak away and the construction sector now faces the most challenging environment for generations."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "A complete recovery in activity to pre-virus levels in the second half of this year remains highly unlikely.
"Many building sites reopened during the month to complete projects underway before the lockdown. Output likely will rise further in June, as shortages of raw materials and protective equipment ease, and the labour supply improves now that some workers can send their children to school again. Nonetheless, the relatively modest rise in new orders index - to 25.1 in May from 10.4 in April - suggest clients remain reluctant to commission new projects while the economic outlook is very uncertain."
Gareth Belsham, director of surveyors Naismiths, said: "New orders are drying up and two thirds of construction firms saw activity fall across the month, but the pace of job losses is easing.
"With construction sites now reopened albeit running at reduced efficiency as contractors implement social distancing rules, the question is moving to how badly will productivity suffer. Shortages of materials are forcing up input costs and steadily tightening the vice on contractors, so it's little wonder sentiment has barely budged from April's low."
Surveys were sent to a panel of 150 construction firms between 12 and 28 May.
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