Press release

6 Aug 2020 London, GB

Purchasing managers report construction activity at 57-month high in July, led by house building sector – EY ITEM Club comments

Encouraging news for the UK economy as purchasing managers indicate that July construction activity built on June’s improvement to expand at the strongest rate since October 2015.

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Related topics Growth
  • The construction PMI rose to a 57-month high of 58.1 in July after rising to 55.3 in June from 29.9 in May, and just 8.2 in April
  • All construction sectors saw improved growth in July, led by housebuilding, where expansion was the strongest since September 2014
  • New business rose for a second successive month and at the fastest rate since February, although the increase was relatively modest
  • There were reports of new business being limited by apprehension in the market. This led to heightened price competition and resulted in a squeeze on construction companies’ margins as input prices rose at the fastest rate since May 2019
  • Employment in the construction sector fell at a faster pace in July. Along with falls in employment across the services and manufacturing sectors reported by the purchasing managers in July, this may prompt the Chancellor to consider further steps to support the labour market in the autumn
  • The stronger July construction purchasing managers’ survey follows improved services and manufacturing surveys
  • The July set of purchasing managers' surveys bolster hope that the economy will see third quarter growth of around 12% quarter-on-quarter as lockdown restrictions ease. It is likely that the economy contracted around 20% quarter-on-quarter in the second quarter
  • The EY ITEM Club suspects growth is likely to slow in the fourth quarter as unemployment rises. The EY ITEM Club expects GDP to contract 11.5% over 2020. The EY ITEM Club sees GDP growth at 6.5% in 2021 as the recovery is limited by persistent consumer caution, higher unemployment and only slowly recovering business investment

Howard Archer, chief economic advisor to the EY ITEM Club, says:

“The purchasing managers survey showed construction activity expanded at the fastest rate since October 2015 in July, building on the improvement seen in June.

“The construction PMI climbed to 58.1 in July after jumping to 55.3 in June from 29.9 in May, and from a record low of just 8.2 in April. It had previously dropped to April’s low from 39.3 in March and a 16-month high of 52.6 in February.

“July’s reading of 58.1 was substantially above the 50.0 level that indicates unchanged activity, pointing to healthy expansion.

“Further out, construction companies will be hoping that the government’s planned increase in infrastructure investment feeds through as quickly as possible to boost activity.”

All construction sectors saw growth in July

Howard Archer adds: “Encouragingly, all of the construction sectors saw clear, improved growth in July.

“House building saw the strongest performance with growth the fastest since September 2014. Markit reported that “survey respondents commented on the release of pent up demand and reduced anxiety among clients.

“Commercial activity expanded the most since August 2018, while civil engineering activity grew at the fastest rate since December 2018. This was reported to be due to the re-starting of work that had been delayed during the second quarter.”

New business up modestly

Howard Archer continues: “The new orders index showed a second successive month of growth in July and was at the highest level since February. Sales were reportedly boosted by the easing of lockdown measures and the restart of work on sites.

“However, there were reports that the market remained apprehensive about committing to new projects.

“Confidence in future activity among construction companies edged back in July after reaching a four-month high in June. There were some concerns about the economic outlook and a lack of new work to replace completed projects. Nevertheless, Markit reported around 43% of the survey panel expect a rise in output over the coming year, while 30% forecast a fall.

“Worryingly, employment in the sector continued to fall in July. Indeed, the rate of decline deepened compared to June. Falls in employment across the services, manufacturing and construction sectors reported by the purchasing managers in July may prompt the Chancellor to consider further steps to support the labour market in the autumn budget.

“Input prices rose at the fastest rise since May 2019. It was reported that with clients remaining apprehensive about committing to new projects, there was intense competition to secure sales and this led to squeezed margins.”