Press release

7 May 2021 London, GB

Purchasing managers report ongoing construction expansion in April – EY ITEM Club comments

More encouraging news on the UK economy as purchasing managers indicate that the construction sector saw ongoing expansion in April, alongside growth in the services and manufacturing sectors. Even allowing for the fact that the purchasing managers surveys can overstate movements in the economy at times of rapid change, the April PMI levels are particularly significant.

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  • More encouraging news on the UK economy as purchasing managers indicate that the construction sector saw ongoing expansion in April, alongside growth in the services and manufacturing sectors. Even allowing for the fact that the purchasing managers surveys can overstate movements in the economy at times of rapid change, the April PMI levels are particularly significant
  • The construction PMI was 61.6 in April, essentially matching March’s reading (61.7) – the highest since September 2014
  • All construction sectors expanded significantly in April, led by commercial work. Civil engineering saw its strongest growth since September 2014, while housebuilding remained elevated
  • New business growth was the strongest since September 2014. Employment rose the most since December 2015, adding to the recent encouraging news on the UK labour market. Confidence in future output was also strong
  • Concern remains over input costs, which rose at a significant rate amid challenges for global supply chains
  • The Government’s roadmap out of lockdown appears to have lifted business and consumer confidence, while the near-term supportive measures in March's Budget have also seemingly reinforced the economic boost
  • With Q1 likely having seen a markedly slower contraction than had originally been anticipated, and with the economy looking to be on the front foot at the start of Q2, the EY ITEM Club substantially raised its 2021 GDP growth forecast to 6.8% in its recent Spring Forecast
  • The economy is expected to benefit progressively from Q2 as restrictions on activity are eased, supported by the roll-out of COVID-19 vaccines
  • Consumers look well-placed to play a leading 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. After an extended period of weakness, business investment is also expected to gain momentum over the course of the year as companies grow more confident in the economy and their own prospects. 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 purchasing managers survey showed the construction sector continuing to expand in April, as an already improving economy benefited from the easing of restrictions on activity.

“The construction PMI came in at 61.6 in April. This was essentially the same as March’s reading (61.7) – the strongest since September 2014 – and maintained the significant improvement in the index from 53.3 in February and an eight-month low of 49.2 in January. April’s reading indicated 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 level of the April construction PMI is significant.

“While the overall tone of the April PMI survey was robust, there were still some concerns for construction companies. Markit reported that ‘A rapid rise in demand for construction products and materials continued to stretch supply chains in April. The latest lengthening of suppliers' delivery times was the third-greatest since the survey began in 1997, exceeded only by those seen during the lockdown in April and May last year.’ This led to input prices for construction companies rising the most since the survey began in 1997.”

All construction sectors expanded significantly led by commercial work

Howard Archer continues: “The fastest expanding construction sector in April was commercial work, which was attributed to rising business confidence and the re-opening of the economy. Meanwhile, growth in the civil engineering sector was the best since September 2014, helped by increased work on major infrastructure projects. House building slowed from March but remained at an elevated level, supported by the pick-up in housing market activity from the second half of 2020 that has continued so far in 2021.”

New business growth strongest since September 2014 in April

Howard Archer says: “Most elements of the construction survey reached significant highs in April. Boding well for future output, 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 2015

“Confidence in future activity among construction companies remained at strong, although it eased back from March’s level, which had been the highest since June 2015.”