- The purchasing managers reported that construction activity lost some momentum in August after marked improvement in July when activity expanded at the strongest rate since October 2015
- The construction PMI dipped to 54.6 in August after strengthening to a 57-month high of 58.1 in July and 55.3 in June. It was just 8.2 in April
- Housebuilding, although still robust, saw reduced expansion in August while there was also a slowdown in growth in commercial activity. Civil engineering activity contracted
- New business rose for a third successive month in August, but at a reduced rate. There were reports of new business being limited by uncertainty among customers. Despite this, confidence in the sector rose
- Employment in the construction sector fell again in August, as it had done in both the services and manufacturing sectors, according to the purchasing managers. This may prompt the Chancellor to consider further steps to support the labour market in the Autumn Budget
- The softer August construction purchasing managers’ survey contrasts with improved surveys for services (at a 64-month high) and manufacturing (at a 30-month high)
- However, an overall stronger set of August purchasing managers' surveys sustains the EY ITEM Club’s belief that the economy will see a substantial rebound in Q3 after GDP contracted a record 20.4% quarter-on-quarter in Q2. The EY ITEM Club expects GDP growth of at least 12% quarter-on-quarter in Q3 and predicts that it could reach around 15% as the economy benefits from reduced lockdown restrictions and the release of pent-up demand
- However, EY ITEM Club suspects growth is likely to slow in Q4 as unemployment rises markedly following the ending of the furlough scheme and the boost from pent-up demand wanes
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The purchasing managers survey showed construction activity expanded at a reduced rate in August. This comes after gaining substantial momentum over July and June when the sector increasingly benefited from the easing of lockdown restrictions and the opening-up of sites.
“The construction PMI fell back to 54.6 in August, after rising to a 57-month high of 58.1 in July from 55.3 in June, 29.9 in May, and a record low of 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.
“August’s reading of 54.6 was still well 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 weakened performance in August
Howard Archer adds: “All of the construction sectors saw weaker performance in August compared to July.
“House building growth was still robust as it grew at the second fastest rate (after July) since October 2014. The housing market has seen a pick-up in activity since restrictions were increasingly lifted from May, further helped by the Chancellor temporarily raising the Stamp Duty threshold from mid-July – although uncertainties remain about the longer-term outlook.
“Commercial activity grew for a third month running, but was relatively modestly and below the rates seen in both July and June.
“Civil engineering activity saw renewed contraction in August after growing in July at the fastest rate since December 2018.”
New business growth slowed
Howard Archer continues: “The new orders index showed a third successive month of growth in August, but only modestly and at a reduced rate compared to July. It was reported that ‘uncertainty and a wait-and-see approach among [customers] had limited their opportunities to secure new work’. However, Markit indicated that the situation varied across clients, which largely mirrored the multi-speed recovery experienced across different sectors of the UK economy.
“It was also reported that there were ongoing difficulties in supply chains, which hampered the sourcing of raw materials. Delivery times lengthened in August as a result of stock shortages at suppliers and cost increases were the highest since April 2019.
“Nevertheless, confidence in future activity among construction companies improved to a six-month high. This was helped by hopes of a boost from major infrastructure projects and resilient public sector construction spending.
“Employment in the construction sector continued to fall in August. Deeper overall falls in employment across the services, manufacturing and construction sectors reported by the purchasing managers in August may prompt the Chancellor to consider further steps to support the labour market in the Autumn Budget.”