Press release

4 Mar 2021 London, GB

Purchasing managers report construction sector returned to growth in February after January’s contraction – EY ITEM Club comments

The purchasing managers indicate that the construction sector returned to growth in February after lockdown had caused it to contract in January for the first time since last May.

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Related topics Growth COVID-19
  • The purchasing managers indicate that the construction sector returned to growth in February after lockdown had caused it to contract in January for the first time since last May.
  • The construction PMI improved to 53.3 in February after weakening to an eight-month low of 49.2 in January from 54.6 in December and 54.7 in November. February’s improvement was led by a pick-up in activity in the commercial sector. Housebuilding kept growing at a decent pace but was at a nine-month low. Civil engineering work contracted for a third month but at a reduced rate.
  • Most elements of the construction survey were improved in February. New business growth picked up appreciably after a significant slowdown in January while employment rose modestly. Confidence in future output was the highest since October 2015.
  • A concern for construction companies was that input costs rose at the fastest rate for more than 12 years due to stretched global supply chains, greater shipping charges and rising commodity prices.
  • The construction PMI completes a set of improved purchasing managers’ surveys for February. While they are still limited overall, the services, manufacturing and construction surveys suggest activity has come off its January lows and eases some concern about the potential size of contraction in the UK economy in Q1. Nevertheless, it still appears that the UK is being much more affected by lockdown and restrictions in Q1 2021 than it was in Q4 2020. The EY ITEM Club expects the economy will experience a clear contraction in Q1 – possibly around 4% quarter-on-quarter.
  • After Q1, the EY ITEM Club expects the economy to benefit progressively through 2021 as the roll-out of COVID-19 vaccines facilitates the easing of restrictions and boosts consumer and business confidence. Most consumers look well-placed to play a key role given the recent high savings ratios, although much will depend on how much unemployment ultimately rises. After an extended period of weakness, business investment is expected to gain momentum over the course of the year as companies grow more confident in the economy; this should be supported by the tax incentive to invest in the Budget.
  • The EY ITEM Club currently forecasts GDP growth of 5.0% in 2021 followed by expansion of 6.5% in 2022. This means the economy regains its peak level of Q4 2019 in Q3 2022.

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

“The purchasing managers survey showed the construction sector improved in February after losing substantial momentum in January. The reintroduction of lockdown measures meant January saw the first contraction since last May.  

“The construction PMI improved to 53.3 in February after falling to an eight-month low of 49.2 in January from 54.6 in December and 54.7 in November. February’s reading of 53.3 indicated a return to growth as it was clearly above the 50.0 level that denotes flat activity.

“However, Markit reported that extended supplier lead times continued last month as vendors experienced transport delays and stronger demand conditions.

“In contrast to the experience in the latest lockdown, the construction PMI actually rose in November (to 54.7 from 53.1 in October) when the sector appeared to largely brush off that month’s lockdown measures. Experience has been gained and lessons gained in keeping construction activity going through lockdowns. Many construction sites have been adjusted to meet COVID-19 health and safety requirements.

“However, it is worth noting that the impact on construction activity in January was significantly less than was seen in the second quarter of 2020 after the first lockdown was imposed on 23 March. Indeed, the construction PMI had fallen to a record low of just 8.2 in April from 39.3 in March and 52.6 in February as most construction sites closed.”

February improvement led by commercial sector

Howard Archer continues: “February’s improvement in construction activity was led by the commercial sector which expanded at the fastest rate since last September after contracting in January. Markit reported that respondents commented on contract awards for commercial building that had previously been delayed while others reported a boost from infrastructure work related to major transport projects.

“House building was still the fastest growing sector in February, but it nevertheless slowed to a nine-month low. Adverse weather and a longer wait for materials were reported to have contributed to February’s slowdown. 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 and January. This has clearly buoyed house building activity. 

“Civil engineering activity was again the worst performing sector as it contracted for a third successive month in February, but the rate of decline did at least moderate.”

New business grew modestly in February 

Howard Archer adds: “Most elements of the construction survey were improved in February.

“New business growth picked up appreciably after slowing significantly to a seven-month low in January. Markit said that construction companies reported improving demand from a range of sources, including residential development, new opportunities in the commercial segment and public sector infrastructure spending.

“Employment in the construction sector grew at the fastest rate since March 2019, albeit modestly, after falling in January.

“Confidence in future activity among construction companies rose to a more than five-year high in February as the COVID-19 vaccines roll-out fuelled hopes that pent-up demand will be released.

“However, some less welcome news for construction companies saw input prices rising at the fastest rate since August 2008. This reflected stretched global supply chains, greater shipping charges and rising commodity prices.”