July construction improves as job cuts increase

Output in the UK construction industry continued to improve for the second month in a row in July, although employment levels continued to fall as businesses restructured to cope with the aftermath of weeks of Covid-19 lockdown.

The IHS Markit/CIPS construction purchasing managers’ index (PMI) hit a reading of 58.1 last month, compared to 55.3 in June. The latest reading was the steepest expansion of overall construction work since October 2015. Residential building was the main growth driver in July, with activity increasing to the greatest extent since September 2014.

One in three firms, 34%, reported a fall in employment levels, as the winding down of the Government furlough scheme nears.

Tim Moore, economics director at IHS Markit, said: “Construction companies took another stride along the path to recovery in July as a rebound in house building helped to deliver the strongest overall growth across the sector for nearly five years.

“Civil engineering and commercial activity are also back in expansion, which has been mainly due to the restart of work that had been delayed during the second quarter of 2020.

“Survey respondents noted a boost to sales from easing lockdown measures across the UK economy and reduced anxiety about starting new projects.”

However, worries about the speed of the recovery led to a “sustained decline” in staffing numbers during the month, the survey said.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said: “Remobilisation in the construction sector intensified this month, with another significant jump in output following the reopening of businesses and supply chains after the first Covid wave. House builders were the most active with the fastest rate of growth since September 2014, as operating capacity improved and anxious clients were ready to unleash deferred orders at the highest rate since February.

“Though builders were slightly less optimistic about prospects for the year ahead compared to the previous month, recovering lost ground gives hope that the damage caused by the pandemic may be less entrenched if recovery continues along this robust path. However, with another sharp fall in staffing levels, the number of redundancies increasing and competition for raw materials resulting in higher costs, holes are already starting to appear just as the sector regains its strength.

“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.”