Subdued order books held back construction output in August, but business expectations reached a six-month high on hopes of a boost from infrastructure work, according to the latest PMI figures released today. (4/9/20).

August data pointed to a setback for the recovery in UK construction output, with growth easing from the near five-year high seen during July. Survey respondents mostly suggested that a lack of new work to replace completed contracts had acted as a brake on the speed of expansion.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index registered 54.6 in August, down from 58.1 in July. Any figure above 50.0 indicates growth of total construction output. Higher levels of activity have been recorded in each of the past three months, but the latest expansion was the weakest over this period. All three broad categories of construction provided a weaker contribution to the headline index in comparison to those seen in July.

House building has registered the strongest rebound since the stoppages of work on site in late-March due to the Covid-19 pandemic.

This trend continued in August, with the seasonally adjusted Housing Activity Index posting well inside expansion territory (60.7). The equivalent figures for commercial work (52.5) and civil engineering activity (46.6) were notably weaker than the headline index in August.

Construction companies noted that economic uncertainty and a wait-and-see approach among clients had limited their opportunities to secure new work. 

However, there were again a wide range of comments from survey respondents in relation to the strength of their order books, which largely mirrored the multi-speed recovery experienced across different sectors of the UK economy.

Supply chain disruption persisted across the construction sector, which led to another sharp downturn in vendor performance. Stock shortages and an imbalance of supply and demand for construction inputs contributed to higher purchasing costs. 

Despite reporting subdued new business intakes since the start of the pandemic, construction companies reported an improvement in their business expectations for the year ahead. 

More than twice as many survey respondents (43%) expect a rise in construction output over the next 12 months as those that anticipate a fall (19%). This was often linked to hopes of a boost from major infrastructure projects and resilient public sector construction spending.

However, an expected rise in business activity could not prevent a further drop in staffing numbers. The rate of job shedding eased only slightly since July and remained among the fastest seen over the past decade.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: “The latest PMI data signalled a setback for the UK construction sector as the speed of recovery lost momentum for the first time since the reopening phase began in May.

“Another month of widespread job shedding highlighted the ongoing difficulties faced by UK construction companies, with order books often depleted due to a slump in demand from sectors of the economy that have experienced the greatest impact from the pandemic.

“More positively for the employment outlook, business expectations climbed to a six-month high in August as construction firms turned their hopes towards a boost from major infrastructure work and reorienting their sales focus on new areas of growth in the coming 12 months."

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The momentum in the sector’s recovery hit a bump in the road in August with a sudden slowdown in output growth and tender opportunities, while employment trends remained the most fragile in a decade.

"Even with all these obstacles, builders were at their most optimistic since the beginning of the year. This glass half full attitude will have to carry companies into the autumn as the UK economy remains delicate and susceptible to more turbulence."

Jan Crosby, UK head of infrastructure, building and construction at KPMG, said: “August’s construction PMI may have pointed to an easing of output growth, but at least the positive momentum continues and there remains a sense of optimism.”

Kate Kirby, partner in the construction & infrastructure practice at DWF, said: “Looking ahead, the sector should prepare for a few difficulties as furlough schemes come to an end. In a post–pandemic world, there will still be a requirement for more homes, urban regeneration, improved infrastructure, improved offices, retail space and more distribution facilities. We all know from past downturns that a robust construction sector will emerge but how and when, we just do not know."

Scape Group chief executive Mark Robinson called for the public sector to play its part and accelerate the next round of planned projects to inject new life into local economies and communities.

He said: “The construction industry took another positive step along the road to recovery, however, with the country in deep recession and with the prospect of a spike in unemployment as furlough support measures begin to ease, the long-term picture remains uncertain.

“With private capital likely to be less forthcoming in the coming months, the public sector must continue to be the driving force behind the sector’s output. Progressive local authorities are rightly seeing urban regeneration as a central pillar of their recovery plans to not only support short term job creation in construction, but to shape new sustainable places and opportunities that will inject new life into local economies and communities.

“To do so, it’s essential that the next round of planned ‘build, build, build’ projects are revealed and progressed quickly. With that in mind, government must now look to identify the right partners that are fully equipped to accelerate the design and build process without compromising on quality or the requirements of the well-being economy.”