Industry leaders have cautiously welcomed a strong rebound in UK construction output after site re-openings gathered pace in June, which also saw the fastest rise in construction activity for nearly two years.
The figures were revealed in the latest monthly IHS Markit/CIPS PMI survey, where June data pointed to a sharp turnaround in the performance of the UK construction sector.
At the same time, new orders stabilised after three months of sharp declines and purchasing activity expanded at the fastest rate since December 2015.
The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index jumped to 55.3 in June, from 28.9 in May, to signal a strong increase in total construction output. Moreover, the latest reading signalled the steepest pace of expansion since July 2018.
Residential building was the best-performing area of construction activity in June. Around 46% of survey respondents noted an increase in housing activity, while only 27% experienced a reduction. The latest expansion of residential construction work was the steepest for just under five years.
Commercial work and civil engineering activity also returned to growth in June, although the rates of expansion were softer than seen for house building.
New business volumes increased marginally in June, which ended a three-month period of decline. However, the rate of new order growth was far weaker than seen for business activity, reflecting ongoing hesitancy among clients and longer lead-times to secure new contracts. A number of construction firms noted that new work related to infrastructure projects was a key source of growth in June.
Employment numbers fell at the end of the second quarter, according to the latest survey data. Reports from panel members suggested that worries about the longer-term demand outlook had led to cautious hiring policies and, in some cases, redundancies alongside furlough arrangements in June.
The index measuring business expectations for the year ahead remained historically subdued, but climbed to its highest since February amid a boost from the reopening of work on site. Exactly 46% of the survey panel anticipate a rise in business activity, while 31% forecast a reduction. The latter mostly commented on concerns about the wider UK economic outlook.
Severe supply chain disruptions continued in June, reflecting stronger demand for construction inputs and ongoing reports of constrained materials availability (especially plaster). This resulted in another rise in purchasing costs, with the rate of inflation accelerating to its highest since the start of 2020.
Tim Moore, economics director at IHS Markit, which compiles the survey, said: "As the first major part of the UK economy to begin a phased return to work, the strong rebound in construction activity provides hope to other sectors that have suffered through the lockdown period.
“While it has taken time for the construction supply chain to adapt and rebuild capacity after widespread business closures, there is now clear evidence that a return to growth has been achieved.
"Looking ahead, construction firms are more confident than at any time since the start of the Covid-19 pandemic. However, the ongoing reductions in staffing numbers seen in June provide a stark reminder that underlying conditions across the sector are a long way off returning to those seen before the public health emergency."
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "Only two months ago the construction sector produced the worst results in the history of the PMI, and there are still some potholes to navigate around as government support for jobs is stripped away. But with a significant rise in the headline output number, it looks as though all the building blocks are there for the sector’s increasing health."
Hannah Vickers, chief executive of the Association for Consultancy and Engineering, said: “Of course, we’re a long way from pre-pandemic activity and employment levels, but we should welcome these figures which show a strong initial rebound for construction. Much of this will be a result of pent-up demand and seizing opportunities to go back to work in June and only an ongoing pipeline of activity over the medium term will ensure we’re able to build this into a true recovery.”
Mark Robinson, chief executive of public sector procurement specialists Scape Group, said: “While we are seeing some green shoots of recovery, few in the industry will be getting too excited given that it is largely a result of the progressive easing of lockdown restrictions. The path to sustainable growth remains unclear and we need a long-term view of the future. Once the protective shield of the government-backed ‘Covid economy’ is withdrawn, future pipeline visibility is critical because it drives strategic investment, the local economy and growth. All eyes will be on the chancellor’s expected announcement this week.”
Max Jones, relationship director in Lloyds Bank Commercial Banking’s infrastructure and construction team, said: “The construction sector is becoming more optimistic, with the easing of lockdown and social distancing measures providing a welcome boost. The pledges to invest in motorways, schools and trainlines have provided a shot in the arm to a beleaguered sector, but until they boost activity levels, Britain’s builders will remain cautious.”
Jan Crosby, UK head of infrastructure, building and construction at KPMG, said: “June’s construction PMI reading certainly makes for welcome news, with the fastest rise in activity in nearly two years hammering home the message that the sector’s focus is well and truly on recovery.”