- In May, according to the purchasing managers, UK construction activity improved from April’s record low as some construction sites re-opened
- Nevertheless, the construction PMI at 29.9 in May (up from just 8.2 in April) was still the second lowest reading since February 2009
- All construction sectors saw a reduced, but still considerable, contraction in May: house building, civil engineering and commercial (which was the worst performing sector)
- Other elements of the survey improved from their April lows while still being at historically low levels in May. New business was still at the second lowest level since the survey started in 1997 while confidence was not far above April’s equal record low
- The sector is also being affected by supply chain problems
- Employment in the construction sector fell at the second fastest rate (after April’s record decline) since March 2009. The decline would likely have been greater if the Government’s furlough scheme hadn’t been in place
- An ongoing fall in services and manufacturing jobs reported by the purchasing managers in May provides context for the Government’s extension of the Coronavirus Job Retention Scheme through to October
- The improvement in the May construction purchasing managers’ survey follows on from similar pick-ups in the services and manufacturing surveys, although all three still point to still substantial weakness
- The set of purchasing managers' surveys for services, manufacturing and construction in May supports belief that April saw the lowest point in UK economic activity and matters should improve further in June with lockdown restrictions further eased
- Despite this, the UK remains headed for a record GDP contraction in the second quarter – the EY ITEM Club expects a second quarter GDP contraction of around 15% quarter-on-quarter
- While the EY ITEM Club expects the economy to return to growth from the third quarter, we still see the economy contracting around 8% over 2020. This assumes that there is a gradual further lifting of the lockdown over the coming weeks following the latest moves that came into effect on 1 June
- Further out, construction companies will be hoping that the Government’s planned stepping up of investment in infrastructure in the Budget feeds through as quickly as possible to boost activity
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The purchasing managers survey showed construction activity in May was still at one of the weakest levels in the survey’s 23-year history, but was nevertheless markedly better than in April when there had been a near standstill in activity while many sites closed due to COVID-19.
“The construction PMI rose to 29.9 in May after falling to a record low of just 8.2 in April from 39.3 in March and a 16-month high of 52.6 in February. The previous record low was 27.8 in February 2009. 50.0 indicates unchanged activity. The first two months of the year had indicated that the construction sector was benefitting from increased willingness by some companies to commit to new projects amid reduced uncertainties following December’s decisive General Election result. Reduced near-term Brexit uncertainties following the UK leaving the EU with a deal on 31 January also appeared to have helped matters.
“Markit reported 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.
All elements of survey showed improvement but still very weak
Howard Archer continues: “All construction sectors saw marked improvement from April but continued to show contracting activity. House building saw the most improvement with the sub-index picking up to 30.9 in May from 7.3 in April. The civil engineering sub-index improved to 28.6 from 14.6. The commercial sector was the worst performing sector but its sub-index did improve to 26.2 from 7.7.
“The new orders index improved from April’s record low by far, but was still at the second lowest level since the survey started in 1997. Markit reported that the drop in orders was “almost exclusively attributed to the coronavirus disease 2019 (COVID-19) 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”.
“Construction activity was much affected in May, as in April, by supply chain issues with closures at builders, merchants and stoppages of manufacturing production leading to widespread supply shortages. Average lead times for the delivery of construction products and materials continued to lengthen.
“Confidence among construction companies only rose modestly from April’s equal record low (matching October 2008).
“Input prices rose at an increased rate as construction companied had had to look for alternative suppliers.”