Fastest rise in construction output since October 2015, but concerns remain

Ede Homes

UK construction companies signalled a sharp and accelerated expansion of business activity during July, led by another strong increase in house building, according to the IHS MARKIT/CIPS UK Construction Purchasing Manager’s Index

It signalled the steepest expansion of overall construction work since October 2015. Residential building was the main growth driver in July, with activity increasing to the greatest extent since September 2014.

New orders also picked up for the second month running, with survey respondents citing a boost to sales from easing lockdown measures and the restart of work on site.

But the speed of recovery was insufficient to prevent more redundancies, and the rate of job shedding was faster than in June due in part to worries about the speed of recovery.

The uptick was pent up demand and reduced anxiety among clients, according to survey respondents. Commercial work and civil engineering activity both expanded at slightly quicker rates than in June. Growth was often attributed to the catch up of work that had been delayed during the coronavirus disease 2019 (COVID-19) pandemic.

July data also indicated the fastest rise in new orders since February. Some construction companies noted a gradual improvement in demand from the lows seen during the second quarter of 2020.

There were reports that clients remained apprehensive about committing to new projects, resulting in intense competition to secure sales and squeezed margins.

Construction firms are optimistic overall about the prospect of a recovery in business activity during the next 12 months. Around 43 per cent of the survey panel expect a rise in output over this period, while only 30 per cent forecast a fall.

However, confidence has moderated since June, which was linked to concerns about the economic outlook and a lack of new work to replace completed projects.

Tim Moore, Economics Director at IHS Markit, which compiles the survey, said: “Construction companies took another stride along the path to recovery in July as a rebound in house building helped to deliver the strongest overall growth across the sector for nearly five years. Civil engineering and commercial activity are also back in expansion, which has been mainly due to the restart of work that had been delayed during the second quarter of 2020.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “Though builders were slightly less optimistic about prospects for the year ahead compared to the previous month, recovering lost ground gives hope that the damage caused by the pandemic may be less entrenched if recovery continues along this robust path.

However, with another sharp fall in staffing levels, the number of redundancies increasing and competition for raw materials resulting in higher costs, holes are already starting to appear just as the sector regains its strength.

“After a summer of this blistering return to growth, building companies should prepare for a chilly autumn as furlough schemes come to an end and the real strength of the UK economy is revealed. Making up for lost time is one thing, but sustainable real growth is what the sector needs otherwise this recovery is just building on soft sand.”