House building 'main growth driver' in construction

6 August 2020

A strong increase in residential building lead to growth in business activity in the construction sector, according to the latest PMI.

The IHS Markit/CIPS UK Construction Total Activity Index reached 58.1 in July, up from 55.3 in June and above the 50.0 no change threshold for the second consecutive month.

This shows the steepest expansion of overall construction work since October 2015, according to the index.

Residential building has been the main growth driver, with activity increasing to the greatest extent in almost six years due to “pent up demand and reduced anxiety among clients”.

Commercial work and civil engineering both expanded in July as work that had been delayed by Covid-19 finally went ahead.

Firms reported that the easing of lockdown measures boosted sales as new orders picked up for a second consecutive month.

Respondents said there had been “gradual improvement in demand”, but clients remained apprehensive about committing to new projects, resulting in competition to secure sales and squeezed margins, according to the index.

Input cost inflation reached its highest level since May 2019. A sharp lengthening of average lead times in July indicated continued cost pressures due to “stretched supply chains”.

Speed of recovery also contributed to a sustained decline in staffing numbers during July, with over one-in-three survey respondents (34%) reporting a fall in employment.

Duncan Brock, group director at CIPS said: “Remobilisation in the construction sector intensified this month, with another significant jump in output following the reopening of businesses and supply chains after the first Covid wave.

“House builders were the most active with the fastest rate of growth since September 2014, as operating capacity improved and anxious clients were ready to unleash deferred orders at the highest rate since February.”

Tim Moore, economics director at IHS Markit, added: “Survey respondents noted a boost to sales from easing lockdown measures across the UK economy and reduced anxiety about starting new projects. However, new work was still relatively thin on the ground, especially outside of residential work, with order book growth much weaker than the rebound in construction output volumes. 

“Concerns about the pipeline of new work across the construction sector and intense pressure on margins go a long way to explain the sharp and accelerated fall in employment numbers reported during July.”

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