Construction industry leaders have cautiously welcomed the quickest rise in new business since lockdown but, although optimism is at a seven-month high, fears persist that construction is currently in the ‘calm before the storm’ with a challenging winter and further potential lockdowns ahead.
Warnings have also been raised that increased housebuilding should not come at the expense of the UK failing to meet its 2050 net zero target, as the latest monthly PMI data for September signalled another sharp increase in UK construction activity at the end of the third quarter.
The expansion came amid the sharpest rise in new business since before the pandemic-induced lockdown, with firms increasing their purchasing activity at the quickest pace for nearly five years.
Meanwhile, employment continued to fall, but the rate of job shedding eased. Looking forward, business optimism for the next 12 months was the strongest since February, with expectations of a sustained rise in new work.
The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index registered 56.8 in September, up from 54.6 in August. Any figure above 50.0 indicates growth of total construction output. The latest reading pointed to a re-acceleration in the rate of activity growth and a sharp increase overall.
Underlying data revealed varied results across the three monitored sub-sectors. The strongest performing category was home building, where firms registered a sharp expansion in activity for the fourth month running. Work undertaken on commercial projects also rose strongly, increasing at quickest pace for over two years. Meanwhile, civil engineering activity fell for the second month running and at the sharpest rate since May.
New orders rose for the fourth time in as many months, with panellists continuing to mention a release of pent-up demand. In line with the rise in new work, UK construction firms recorded another marked increase in purchasing activity at the end of third quarter, with the rate of growth accelerating to its fastest since October 2015.
Eliot Kerr, economist at IHS Markit, which compiles the survey, said: "Following August's slowdown, growth in UK construction activity rebounded strongly in September. Forward-looking indicators point to a sustained rise in activity, with new work increasing at the quickest pace since before the lockdown and sentiment towards the 12-month outlook at its strongest for seven months.”
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "UK construction took off in September, soaring ahead of both the manufacturing and service sectors in terms of output growth and recording the fastest rise in purchasing activity since October 2015. However, civil engineering took another backwards step and progress worsened significantly as bigger construction developments stayed in suspended animation. Government support schemes are winding down, so the bigger worry remains levels of job creation. With another drop in employment numbers, vacancies were sparse and further redundancy schemes could be on the cards once this pent-up demand for work is satisfied.”
Dave Sheridan, executive chairman at modular housing company ilke Homes, said: “It’s great to see housebuilding continue to bounce back strongly since lockdown earlier in the year. However, if the construction industry is going to continue on this positive trajectory it’s going to be crucial that we scale-up innovative methods to housebuilding because, at present, the sector does not have anywhere near the capacity to deliver on the government’s 300,000 home a year target.
“Increasing housebuilding output must not come at the expense of the UK economy meeting its net-zero targets by 2050. That’s why as we look ahead to a more carbon-conscious climate, factory-built homes must sit at the heart of the solution."
Max Jones, relationship director in Lloyds Bank Commercial Banking’s infrastructure and construction team, said: “Despite this month’s increase in activity, there’s still a feeling that this is the calm before the storm for construction. The next few months hold a few key milestones – namely the nature of the UK’s future relationship with the EU and the end of the furlough scheme.
“One huge positive is how attractive the sector remains to talent. We’re hearing of people from other industries retraining for a career in construction while projects such as HS2 mean contractors are able to make hiring decisions with the long-term in mind.”
Kate Kirby, partner in the construction and infrastructure practice at DWF, said: "Looking ahead, the sector really needs to prepare for a few difficulties as the furlough comes to an end and the Job Support Scheme kicks in, and whether employers opt for the latter, more complicated, option.”
Mark Robinson, chief executive at public sector procurement authority Scape Group, said: “It promises to be a challenging winter for construction. The prevailing uncertainty around future lockdowns is likely to hinder private capital investment in the months ahead, and the onus is on the public sector to pick up the torch of industry and bring the construction sector along with it.
“Urban regeneration and civic infrastructure projects are well-placed to provide vital impetus but we can’t afford a window of inactivity. As such, it is crucial that projects move through procurement swiftly so that we can seize the opportunity to invest in the future of communities and public services through high-quality, low-carbon facilities.”
September PMI data was collected between 11-29 September 2020.