Construction rebounds as purchasing hits five-year high

6 July 2020

House-building led a rebound in UK construction in June, according to the latest PMI.

The IHS Markit/CIPS UK Construction Purchasing Managers' Index increased to 55.3 in June, significantly above the neutral 50.0 mark and up from 28.9 in May, showing a strong increase in total construction output.

Residential building performed best, with around 46% of survey respondents indicating an increase in housing activity. Commercial work and civil engineering activity also saw an uptick in June. 

According to the survey, purchasing activity expanded at the fastest pace in almost five years.

However, supply chains continued to experience “severe disruptions” in June, indicating stronger demand for supplies and restricted availability of materials. This caused purchasing costs to increase and the rate of inflation to climb to its highest since the start of the year.

Business expectations were at the highest since February as work sites reopened, with 46% of respondents expecting a rise in business activity and 31% predicting a fall due to concerns about the wider economy.

While an increase in new orders ended a three-month long decline, they were not strong and reflected ongoing hesitancy and longer lead times to secure new contracts. Construction firms highlighted that new infrastructure projects were a key source of growth. 

Duncan Brock, group director at CIPS, said: "Builders were the stars of the UK economy in June with the fastest rise in purchasing activity in almost five years, as pent-up building plans were unleashed following the easing of lockdown measures. Housing led the way with the other main sectors closely behind as several larger infrastructure projects were also on the move.

"As business confidence improved to its largest extent since February, companies were buying up materials and laying the groundwork for a stronger summer’s end. This resulted in the highest input price inflation since the start of the year as supply chains creaked under the strain of increased shortages. Building performance is dependent on other sectors recovering at a similar pace, and as businesses were opening up, some fell short of their usual delivery capacity."

Tim Moore, economics director at IHS Markit, said: "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."

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