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Lockdown easing helps alleviate construction downturn

IHS Markit/CIPS UK Construction PMI data

Construction sector downturn eases slightly in May following unprecedented slump in April

ACCORDING to today’s UK Construction PMI figures from IHS Markit/CIPS, construction companies suffered a sustained downturn in business activity during May, albeit at a softer pace of decline than the record slump seen in April, largely 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 still the second lowest since February 2009 (any figure below 50.0 indicates an overall decline in output).

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.

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 indicated a rapid drop in new orders received by UK construction companies, which was almost exclusively attributed to the coronavirus 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, 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.

‘Survey respondents often commented on the cancellation of new projects and cited concerns that clients would scale back spending through the second half of 2020, especially in areas most exposed to a prolonged economic downturn.

‘With construction firms anticipating a reduced pipeline of work and fewer tender opportunities, business expectations for the next 12 months remained negative in May. Since the start of the lockdown period in March, business sentiment has remained more downbeat than at any time since October 2008.’

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