Press release

8 Apr 2021 London, GB

Purchasing managers report construction sector activity in March reached highest level since September 2014 – EY ITEM Club comments

Encouraging news for the UK economy as the purchasing managers indicate the construction sector saw significantly improved growth in March despite the ongoing lockdown. This had also been the case with the services and manufacturing sectors.

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Related topics COVID-19 Growth
  • Encouraging news for the UK economy as the purchasing managers indicate the construction sector saw significantly improved growth in March despite the ongoing lockdown. This had also been the case with the services and manufacturing sectors
  • The construction PMI grew to 61.7 in March, which was the highest reading since September 2014. This was up from 53.3 in February and an eight-month low of 49.2 in January
  • March’s PMI is impressive, even allowing for the fact that the purchasing managers’ surveys can overstate movements in the economy at times of rapid change
  • Housebuilding was the strongest growing sector in March with activity picking up to the highest level since July 2020, while commercial activity and civil engineering both expanded at the fastest rate since H2 2014
  • All elements of the construction survey were improved in March with most hitting long-term highs. New business growth was the strongest since September 2014 while employment rose the most for over two years. Confidence in future output was the highest since June 2015
  • Input costs rose at the fastest rate since August 2008 due to stretched global supply chains, higher shipping charges and rising commodity prices
  • The construction PMI completes a set of significantly improved purchasing managers’ surveys for March and adds to evidence that the economy is picking up momentum ahead of an easing of restrictions on 12 April
  • It still looks more likely than not that the economy contracted in the first quarter, but the decline in GDP was probably substantially less than had originally been expected. The EY ITEM Club now suspects that the economy contracted by just over 1% quarter-on-quarter in the first quarter, compared to the 3-4% q/q decline that had originally been anticipated. The EY ITEM Club expects to raise its current 2021 GDP growth forecast of 5.0%
  • Consumers look well-placed to play a key role in the UK recovery given the recent high savings ratios, especially as it now looks likely that unemployment will rise much less than had been expected, helped by the extension of the furlough scheme
  • Additionally, 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.

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

“The construction sector saw substantial improvement in March despite the ongoing lockdown. The sector had previously returned to growth in February after contracting in January for the first time since last May, thanks to the initial impact of the current lockdown measures.

“The construction PMI rose to 61.7 in March, the highest reading since September 2014. This was up from 53.3 in February and an eight-month low of 49.2 in January. It had fallen to January's low from 54.6 in December and 54.7 in November. March’s reading of 61.7 indicates robust growth as it was well above the 50.0 level that denotes flat activity.

“Even allowing for the fact that the purchasing managers’ surveys can overstate movements in the economy at times of rapid change, the improvement in the March construction PMI is particularly impressive.

“Experience has been gained in keeping construction activity going through lockdowns. Many construction sites have been adjusted to meet COVID-19 health and safety requirements.

“However, while the overall tone of the March PMI survey was much improved with most elements hitting long-term highs, there were some concerns for construction companies. Markit noted that constrained supplier capacity and stretched transport availability continued to pose challenges for the construction sector. Short supply of products and materials pushed up purchase prices at the fastest rate since August 2008.”

All construction sectors expanded in March, led by house building 

Howard Archer continues: "The fastest expanding construction sector in March continued to be house building and activity picked up to an eight-month high in March from a nine-month low in February. In February, the sector had reportedly been affected by adverse weather and a longer wait for materials. Housing market activity picked up markedly over the second half of 2020 and has remained at elevated levels so far in early-2021 and this has clearly buoyed house building activity.

“The commercial sector also saw very healthy activity in March as it expanded at the fastest rate since September 2014. Similarly, civil engineering activity grew the most since October 2014. This was a particularly impressive turnaround as activity in that sector had contracted over the previous three months.

“Markit noted that survey respondents often commented on the mobilisation of delayed projects, especially in areas such as hospitality, leisure, and office development. There were again reports of a boost from major infrastructure projects in March, as well as higher workloads due to greater spending on residential construction work and rising new home sales.”

New business growth strongest since September 2014 in March 

Howard Archer says: “Most elements of the construction survey were considerably improved in March and reached long-term highs.

“New business growth was the strongest since September 2014 reflecting improving client demand and contract awards on projects that had been put on hold earlier in the pandemic. Employment in the construction sector grew at the fastest rate since December 2018.

“Confidence in future activity among construction companies rose to the highest level since June 2015 as the COVID-19 vaccines roll-out fuelled hopes that pent-up demand will be released and the economy will improve.”