Construction purchasing managers Index recovers in May but weakness continues
UK construction continued a sustained downturn in business activity during May according to the latest IHS Markit/CIPS UK Construction Total Activity Index. The latest survey highlighted a softer pace of decline than the record slump in the previous month, largely reflecting a gradual reopening of construction sites as lockdown measures were eased in England.
At 28.9 in May, the headline seasonally adjusted Index increased from the record low of 8.2 in April, but was the second-lowest since February 2009. Any figure below 50.0 indicates an overall decline in output.
May data also indicated a rapid drop in new orders received by UK construction companies, which was almost exclusively attributed to the coronavirus disease 2019 (COVID-19) pandemic. Survey respondents commented on a sharp decline in demand for new construction projects, although some noted that the reopening of sites had helped to alleviate the scale of the downturn in order books.
Tim Moore, Economics Director at IHS Markit, which compiles the survey, said: “A gradual restart of work on site helped to alleviate the downturn in total UK construction output during May, but the latest survey highlighted that ongoing business closures and disruptions across the supply chain held back the extent of recovery.
“It seems likely that construction activity will rebound in the near-term, as adaptations to social distancing measures become more widespread and the staggered return to work takes effect. However, latest PMI data pointed to another steep reduction in new orders
received by UK construction companies, with the pace of decline exceeding the equivalent measures seen in the manufacturing and service sectors.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “Spending was slashed as clients continued to stonewall building firms and put new projects on hold. With furloughed staff across the supply chain, companies saw their capacity leak away and the construction sector now faces the most challenging environment for generations. Building materials were in constrained supply as vendors gradually reopened in May, while items such as personal safety equipment were difficult to source.
“As the sector staggers back to work, and builders put their heads above the parapet, they face a number of obstacles. New safer working practices will ensure operations can continue but client confidence to place new orders is harder to predict. As the furlough scheme is unravelled towards the end of the summer, the floodgates preventing redundancies may also fly open and job losses will follow without a strong pipeline of work waiting in the wings. It will take a long time for the sector to build strength from the ruins of COVID-19.”
Around 64% of the survey panel reported a drop in construction activity during May, while only 21% signalled an expansion. Where growth was reported, this was mostly attributed to a limited return to work on site following shutdowns in April.
Looking ahead, construction companies remain downbeat about their prospects for the next 12 months, with sentiment holding close to April’s low. Recession worries and fears of postponements to new projects were commonly reported in May.
