- The purchasing managers report indicates that construction activity contracted for the first time since last May, revealing the negative impact of the renewed lockdown in January on the sector
- Notably, the indication of a January contraction contrasts with the pick-up in November when the last lockdown occurred – evidence that the current lockdown has had a more negative effect on the economy
- The construction PMI dipped to an eight-month low of 49.2 in January from 54.6 in December and 54.7 in November. Housebuilding continued to grow at a decent pace but was at a seven-month low. Commercial activity contracted for the first time since May, while civil engineering work contracted for a second month and at the fastest rate since October
- Markit noted that the sector is reporting import delays, with UK port congestion contributing to the biggest increase in delivery times for almost a year
- All elements of the construction survey were weaker in January: new business growth was slower and smaller, employment fell, confidence dipped to a three-month low, and input prices rose at the fastest rate in over two-and-a-half years
- The overall set of January manufacturing purchasing managers’ surveys for the services, manufacturing and construction sectors are markedly weaker – showing that the UK has been much more affected by lockdown restrictions in the first quarter of 2021 than it was in the fourth quarter of 2020. The EY ITEM Club expects the economy will experience a clear contraction in the first quarter – possibly in the region of 4% quarter-on-quarter
- After a challenging first quarter, with lockdowns very possibly in place through to the end of March, the EY ITEM Club expects the economy to benefit progressively through 2021 from the roll-out of COVID-19 vaccines. Consumers look well-placed to play a key role given the recent high savings ratios, although much will depend on unemployment numbers. Business investment is expected to gain momentum over the course of the year as companies grow more confident in the economy
- The EY ITEM Club’s recent Winter 2021 forecast sees GDP growth of 5.0% in 2021 after estimated contraction of 10.1% in 2020
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The purchasing managers survey showed the construction sector lost substantial momentum in January, contracting for the first time since last May as it was affected by lockdown measures.
“The construction PMI reached an eight-month low of 49.2 in January from 54.6 in December and 54.7 in November. This indicated modest contraction, remaining below the 50.0 level that denotes flat activity.
“According to Markit, construction companies often noted that the third national lockdown and concerns about the near-term economic outlook had led to greater hesitancy among clients, especially for new commercial projects. Markit also commented that construction companies reported delays with receiving imported products and materials from suppliers, with congestion at UK ports contributing to the most sizeable lengthening of delivery times since May 2020.
"Notably, the construction PMI declined in January to indicate modest contraction. This contrasted with the increase in November – to 54.7 from 53.1 in October – when the construction sector appeared resilient amid the impact of that month’s lockdown.
“However, the impact on construction activity in January was still not as deep as happened in the second quarter of 2020, after the first lockdown was imposed on 23 March. Indeed, the construction PMI then reached a record low of just 8.2 in April from 39.3 in March and 52.6 in February, as most construction sites closed. Many construction sites have since adjusted to meet COVID-19 health and safety requirements and operations have continued.
All construction sectors weaker in January but house building kept growing
Howard Archer continues: “All construction sectors weakened in January with only house building expanding.
“House building growth was still at a decent level in January, but nevertheless slowed to a seven-month low. The housing market saw a substantial pick-up in activity over the second half of 2020, with Bank of England data showing mortgage approvals for house purchases reaching a more than 13-year high in November and remaining close to this level in December. This has clearly buoyed house building activity.
“Commercial activity contracted in January and appreciably after growing over the previous seventh months. Civil engineering activity was the worst performing sector as it contracted for a second successive month in January and at the fastest rate since October.”
New business grew modestly in January
Howard Archer says: “All elements of the construction survey were clearly weaker in January.
“New business managed to continue expanding in January, but the rate of growth was slight and it lost momentum to be at its slowest since June. According to Markit, survey respondents mostly commented on delayed projects in the commercial segment due to the impact of the pandemic, while some also cited less favourable demand conditions for residential work.
“After increasing in December for the first time since March 2019, employment in the construction sector fell again in January.
“Adding to the challenges for construction companies, input prices rose at the fastest rate for over two-and-a-half years. This reflected rising prices for plaster, steel and timber.
“Confidence in future activity among construction companies dipped to a three-month low but was still at a decent level.”