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Buyers report easing of growth as new orders falter

4 September 2020

Construction buyers have reported a fall in the rate at which construction is bouncing back from the coronavirus pandemic during August.

The IHS Markit / CIPS UK Construction PMI survey found that a lack of new work to replace completed contracts has dampened the speed of recovery in the sector.

The index registered a score of 54.6 in August (where any figure above 50 indicates growth in total construction output), down from 58.1 in July.

While still in growth, the rate of expansion in August was at its weakest level for three months.

House building continued its strong return to growth, recording a score of 60.7 in August. Commercial work stood at 52.5, while civil engineering activity was weaker at 46.6.

Total new business volumes increased for the third month running during August, but the rate of expansion remained only “modest” and slowed since July.

Clients adopt ‘wait-and-see’ approach

Construction companies reported a “wait-and-see” approach among clients, which has limited their opportunities to secure new work, the survey found. However, several respondents noted the strength of their firms’ order books.

Meanwhile, purchasing costs rose, with the overall rate of input price inflation in August at its highest since April 2019.

And despite subdued new orders, more than twice as many survey respondents (43%) said they expected 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.

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. House building remained the best-performing area of construction activity, with strong growth helping to offset some of the weakness seen in commercial work and civil engineering activity. The main reason for the slowdown in total construction output growth was a reduced degree of catch-up on delayed projects and subsequent shortages of new work to replace completed contracts in August.

“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.”

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