Construction remains optimistic as housebuilders lead recovery

UK construction firms signalled a sharp and accelerated expansion of business activity during July, with house building driving the strong increase according to the latest IHS Markit/CIPS UK Construction Total Activity Index survey. New orders also picked up for the second month running, as work recovered from an easing in lockdown measures. However, the speed of recovery was insufficient to prevent additional cuts to employment numbers across the construction sector and the rate of job shedding was faster than in June.

At 58.1 in July, up from 55.3 in June, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index registered above the 50.0 no-change threshold for the second consecutive month.

Construction firms are optimistic overall about the prospect of a recovery in business activity during the next 12 months. Around 43% of the survey panel expect a rise in output over this period, while only 30% forecast a fall. However, confidence has eased since June, which was linked to concerns about the economic outlook and a lack of new work to replace completed projects.

Residential building was the main growth driver in July. 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 lockdown period.

The survey also reports that some clients are apprehensive about committing to new projects, and this is creating intense competition to secure work and squeezed margins.

Tim Moore, Economics Director at IHS Markit, which compiles the survey, said: “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.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “Remobilisation in the construction sector intensified (in July), with another significant jump in output following the reopening of businesses and supply chains after the first Covid wave.

“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.”