UK construction sector rebounds but job losses mount

UK construction activity rebounded more than expected in June as the economy reopened but worries about long-term demand led to further jobs cuts.

The IHS Markit/Cips UK Construction purchasing managers’ index rose to 55.3 in June, from 28.9 the previous month.

The reading marks the steepest pace of expansion since July 2018 and is above both the increase to 47 forecast by economists polled by Reuters and the 50 mark that indicates a majority of companies reporting an improvement compared with the previous month.

 “June’s survey data revealed a steep rebound in UK construction output as more sites began to reopen and the supply chain kicked into gear,” said Tim Moore, economics director at IHS Markit.

“House building led the way with the fastest rise in activity for nearly five years, while commercial and civil engineering also joined in the recovery from the low point seen in April.”

According to the PMI report, the latest expansion of residential construction work was the steepest for just under five years, reflecting the mid-May relaxation of the restrictions that froze the property market from the end of March.

Commercial work and civil engineering activity also returned to growth in June, although at a slower rate than for house building.

New business volumes increased marginally in June, marking the first expansion since the outbreak.

However, the index measuring business expectations for the year ahead remained historically subdued and businesses reported falling jobs numbers.

“Employment levels remained deflated, with reports of redundancies, furloughed staff and a reluctance to boost staff numbers when new order levels remained so flat,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

Depressed employment levels, despite the sector reopening, are the latest sign that businesses are adapting to a “new normal” of lower sales, consistent with rising overall unemployment.

“Barring a lengthening of the furlough scheme in the chancellor’s fiscal statement on Wednesday, we think that unemployment will rise from 3.9 per cent in April to a peak of 7 per cent in mid-2021,” said Andrew Wishart, UK economist at consultancy Capital Economics.

Disruptions in the supply chains also resulted in problems sourcing materials, especially plaster, and rising purchasing costs, according to the PMI report.

The findings from the PMI survey are in line with the Office for National Statistics’ assessment of the business impact of Covid-19. It reported last week that the proportion of construction companies open for business rose by 5 percentage points to 87.4 per cent in the two weeks to the middle of June from the previous two weeks.

However, a complete and quick recovery in the construction sector “is not on the cards”, said Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics. He said depressed office and retail occupancy rates threatened to weigh on growth, despite a boost from increased public investment spending.

Mr Tombs expected construction output to be about 5 per cent below its pre-coronavirus level in the fourth quarter of the year.

Last week, the PMI for manufacturing and services showed a similar stabilisation. Across all sectors, the PMI reading rose to 48.3 in June, up from 29.9 in May.

The UK construction PMI outperformed that of the eurozone, which rose nearly 10 points to 48.3. 

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