- Decent news for the UK economy as the purchasing managers indicate that construction activity picked up in September, completing a much improved Q3
- The construction PMI rose back up to 56.8 in September after dipping to 54.6 in August from a 57-month high of 58.1 in July. September’s reading of 56.8 was the second highest since December 2015
- The Q3 average of 56.5 was up substantially from the record low of 30.8 in Q2 and the best quarterly average since Q4 2015
- Housebuilding led the way in September and there was also robust growth in commercial activity. However, civil engineering activity contracted for a second month running and at a faster rate
- Forward-looking indicators were broadly healthy and improved. New business rose at the fastest rate since February. Confidence in future activity strengthened to a seven-month high
- Employment in the construction sector continued to fall, but at the slowest rate for seven months
- Despite the improved construction PMI, the September set of purchasing managers’ surveys show an overall modest easing back in UK economic activity from August’s peak level. The all-sector PMI fell back to 56.6 in September from August's six-year high of 58.7. This was caused by a moderation in services and manufacturing activity from respective 64-month and 30-month highs in August
- Nevertheless, the September purchasing managers’ surveys are robust overall and support the EY ITEM Club’s belief that the economy saw a substantial rebound in Q3 after GDP contracted a record 19.8% quarter-on-quarter in Q2. The EY ITEM Club suspects GDP growth was at least 15% quarter-on-quarter in Q3, and could have reached around 17% quarter-on-quarter
- However, the EY ITEM Club suspects Q4 will be more challenging for the UK economy due to a likely marked rise in unemployment, waning pent-up demand and increased restrictions on activity due to rising COVID-19 cases. Additionally, business caution and reluctance to invest in Q4 may be magnified by uncertainties over the future UK-EU relationship
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The purchasing managers survey showed construction expansion regained momentum in September after some slowdown in August and was not that far below the 57-month high achieved in July. The sector had gained substantial momentum over July and June as it increasingly benefitted from the easing of lockdown restrictions and the opening up of sites.
“The construction PMI rose back up to 56.8 in September after dipping to 54.6 in August from a 57-month high of 58.1 in July. It had previously picked up to July’s high of 58.1 from 55.3 in June, 29.9 in May, and a record low of just 8.2 in April when most sites had been closed due to the lockdown imposed on 23 March.
“September’s reading of 56.8 was substantially above the 50.0 level that indicates unchanged activity, pointing to healthy expansion. It was the second highest level since December 2015 and was well above the construction PMI lifetime (1997-2020) average of 53.7
“Furthermore, the third quarter average of 56.5 was up substantially from the record low of just 30.8 in the second quarter and was the best quarterly average since the fourth quarter of 2015.
“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.”
House building and commercial activity saw improved, robust growth in September; civil engineering contracted
Howard Archer continues: “Two out of three construction sectors saw robust performances in September.
“House building growth was the second fastest (after July) since September 2014. The housing market has seen a marked 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 its longer-term outlook.
“Commercial activity grew for a fifth month running and at the fastest rate for two years.
“In contrast, civil engineering activity contracted for a second month running in September and at a deeper rate after growing in July at the fastest rate since December 2018. This was reported to be affected by bigger construction developments staying in ‘suspended animation’.”
New business growth and confidence picked up
Howard Archer adds: “New orders grew at the fastest rate since February in September and for a fourth successive month. This was supported by the release of pent-up demand. An overall improvement in demand conditions was seen in September.
“Confidence in future activity among construction companies improved to a seven-month high. This was buoyed by expectations of sustained increases in new business.
“Employment in the construction sector continued to fall in September, but at the slowest rate for seven months. Nevertheless, this is still consistent with the Government taking further supportive action for the labour market with the Jobs Support Scheme.”