Chartered Institute of Building Magazine of the Chartered Institute of Building

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V-shaped bounce back for construction in June

6 July 2020

Construction activity enjoyed a sharp turnaround in June, as a phased return to work on site lifted output and boosted business confidence.

That’s according to the latest survey of construction buyers in the IHS Markit/CIPS UK Construction Total Activity Index, which jumped to 55.3 in June (where a score above 50 indicates growth), up from 28.9 in May

The increase was the steepest rise in activity since July 2018, with residential building the best-performing area of construction. Around 46% of survey respondents noted an increase in housing activity, while only 27% experienced a reduction. The latest expansion of residential construction work was the steepest for just under five years.

Commercial work and civil engineering activity also returned to growth in June, although the rates of expansion were softer than seen for house building. New business volumes increased marginally in June, which ended a three-month period of decline.

But the rate of new order growth was “far weaker” than for business activity, reflecting ongoing hesitancy among clients and longer lead-times to secure new contracts. Several firms indicated that it was in infrastructure that they were winning new work.

Employment numbers also fell at the end of the second quarter, according to the latest survey data. Panel members suggested that the longer-term demand outlook from clients had led to cautious hiring policies and, in some cases, redundancies alongside furlough arrangements in June.

The index measuring business expectations for the year ahead remained historically subdued but climbed to its highest since February amid a boost from the reopening of work on site. Exactly 46% of the survey panel anticipated a rise in business activity, while 31% forecast a reduction.

And buyers reported a rise in purchasing costs, with the rate of inflation accelerating to its highest since the start of 2020.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: “June’s survey data revealed a steep rebound in UK construction output as more sites began to reopen and the supply chain kicked into gear. House building led the way with the fastest rise in activity for nearly five years, while commercial and civil engineering also joined in the recovery from the low point seen in April.

“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 closures, there is now clear evidence that a return to growth has been achieved.

“While some survey respondents commented on cautious optimism about their near-term prospects, construction companies continued to face challenges securing new work against an unfavourable economic backdrop and a lost period for tender opportunities. At the same time, operating expenses are rising due to constrained capacity across the supply chain and the impact of social distancing measures.

“Looking ahead, construction firms are more confident than at any time since the start of the covid-19 pandemic. However, the ongoing reductions in staffing numbers seen in June provide a stark reminder that underlying conditions across the sector are a long way off returning to those seen before the public health emergency.”

Commenting on the findings of the survey, Fraser Johns, finance director at construction firm Beard, said: “There can be little doubt that the construction sector has been one of the hardest-hit by the covid-19 pandemic. These figures indicate a significant recovery from the historic lows of the last two months. It’s going to be a long, hard road back, and will require a concerted effort between government and industry, but these figures suggest the industry is getting back on track.

“Recent government measures and the Prime Minister’s speech urging the country to ‘build, build, build’ will help give investors the confidence to back new projects. The industry needs to be ready to respond, and maintain effective relationships across the supply chain to ensure buildings can be delivered speedily and to a high standard.”

Mark Robinson, chief executive of public sector procurement specialists Scape Group, added: “While we are seeing some green shoots of recovery, few in the industry will be getting too excited given that it is largely a result of the progressive easing of lockdown restrictions. The path to sustainable growth remains unclear and we need a long-term view of the future. As we start to see the true economic impact of covid-19, this has never been more important.  

“The prime minister’s £5bn infrastructure stimulus announcement last week is to be welcomed and is rightly focused on providing an immediate boost to both industry and UK Plc. But what about the long term future? Once the protective shield of the government-backed ‘covid economy’ is withdrawn, future pipeline visibility is critical because it drives strategic investment, the local economy and growth.

“Construction is at the heart of a successfully functioning economy and we must make this and future investment count as we look towards recovery. All eyes will be on the Chancellor’s expected announcement this week.”