UK Construction Sector Bounces Back

Covid-19 may have dampened the construction sector, with a 3-month recession hitting the industry, but few sectors have rebounded as effectively as construction, with the sharpest rise in construction activity in nearly 2 years.

But it hasn’t all been good news for construction professionals – even with new orders returning to pre-Covid levels, scarcity of materials has driven up costs, and unemployment in the sector is on the rise.

The seasonally adjusted HIS Markit / CIPS UK Construction Total Activity Index increased to 55.3 in June, a sharp increase from May’s 28.9. This boost in business activity has been attributed to the reopening of the UK construction supply chain after closures during the early stages of the coronavirus lockdown.

Commercial construction and civil engineering began to grow again in June for the first time since January, but of all areas of construction, residential building was the best performing that month, with around 46% of construction professionals surveyed noticing an increase in housing activity, and only 27% reporting a reduction. This has been the steepest rise in nearly 5 years.

After 3 months of steep declines, new order growth increased slightly in June. The increase was most significant in residential building, with business building lagging behind due to slower lead times and hesitancy among clients. Many construction firms noted that new work related to infrastructure was a key source of growth in June as the UK began to return to work.

Unfortunately, employment numbers fell at the end of the second quarter, partly due to redundancies and partly due to a reduction in hiring as businesses exercise caution regarding their future. This decline has slowed since April, but is unlikely to recover by the end of the year without significant change.

A sharp increase in purchases was recorded in June, with the highest quantity of purchases in over 4 years. This was mainly attributed to companies restarting on-site work.

Unsurprisingly, business expectations for the year ahead dipped over the last 4 months. However, we have seen an uptick in June, with 46% of industry professionals surveyed anticipating a rise in business activity and only 31% predicting a reduction. The majority of that 31% cited the UK’s economic outlook on the whole as a reason.

Supply chain disruptions have continued throughout the lockdown period into June, and shortages of certain materials, for example plaster, have hindered the industry’s regrowth and pushed purchasing costs higher. This has contributed to a downturn in supplier delivery times over the past 6 months.

Overall, the biggest indicator of the current temperature in the construction industry is the future activity index, which has shown the first positive result since lockdown started. Respondents said they felt more positive now the construction sector has reopened, but their concerns about the UK’s economic outlook as a whole have made them cautious to predict a return to pre-Covid levels.