V-shaped bounce back for construction in June

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.”