Construction maintains decline through May

UK construction companies saw a sustained downturn in business activity during May, although the pace of decline was less fierce than it had been in April,
reflecting a gradual reopening of construction sites as lockdown measures were eased in England.

At 28.9 in May, the headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index picked up from 8.2 in April, but was the second-lowest since February 2009. Any figure below 50.0 indicates an overall decline in output.

Around 64% of the survey panel saw lower construction activity during May, while only 21% saw growth and this was mostly attributed to a limited return to work on site following the shutdowns in April.

Among the issues contributing to the decline were furloughed staff across the supply chain, prolonged business closures in other parts of the economy and disruptions from social distancing measures on existing projects.

Residential work was the most resilient category in May (index at 30.9), followed by civil engineering (28.6). Commercial building also fell at a slower pace during the latest survey period, but was the worst performing broad area of construction (26.2).

May data also showed a rapid drop in new orders for UK construction companies, which was almost exclusively attributed to the COVID-19 pandemic. Survey respondents saw a sharp decline in demand for new construction projects, although some said that the reopening of sites had helped to alleviate the scale of the downturn in order books. There were again widespread reports that redundancies would have been far more severe without the use of the government’s jobs retention scheme.

Supply chain disruptions have not helped, with lead times for construction products and materials continuing to lengthen at a rapid pace. A lack of capacity for deliveries and ongoing business closures had resulted in the need to source alternative suppliers, which had also pushed up costs.

Looking ahead, construction companies remain downbeat about their prospects for the next 12 months, with sentiment holding close to April’s low.

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 points to another steep reduction in new orders, with the pace of decline exceeding the equivalent measures seen in the manufacturing and service sectors.

“Since the start of the lockdown period in March, business sentiment has remained more downbeat than at any time since October 2008.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said: “The construction sector suffered one of its worst
results in May since the PMI surveys began as building work was grounded by the pandemic and lockdown measures.
” 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.”