Press release

5 Aug 2021 London, GB

Construction lost momentum in July, but outlook remains bright – EY ITEM Club comments

July’s construction PMI of 58.7 was a significant fall from the previous month’s 24-year high of 66.3. That said, the PMI pointed to a sector still firmly in expansion mode and a loss of momentum appears to be more a consequence of capacity constraints than weaker demand.

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  • July’s construction PMI of 58.7 was a significant fall from the previous month’s 24-year high of 66.3. That said, the PMI pointed to a sector still firmly in expansion mode and a loss of momentum appears to be more a consequence of capacity constraints than weaker demand.
  • A buoyant appetite for home improvements, a strong housing market and increased spending on infrastructure projects all point to construction sector demand remaining strong. The ability of the sector to overcome shortages of workers and materials in meeting that demand will be the big challenge. But a higher-pressure environment for construction will hopefully give firms in the sector the impetus to improve efficiency and productivity and mitigate supply-side pressures.

Martin Beck, senior economic advisor to the EY ITEM Club, says:

“July’s construction PMI of 58.7 came in significantly below the previous month’s 24-year high of 66.3 and left the index at the lowest since February. A fall in the construction index accompanied declines seen in the same month’s services and manufacturing indices. But the loss of momentum in the construction sector looks to be more an issue of supply-side constraints, related to a lack of transport availability, port congestion, and trade frictions, than weaker demand.

“Indeed, on the demand side, the outlook for the construction sector remains very healthy. Structural factors, such as higher demand for larger, out-of-town, properties and retail-to-residential conversions in cities, will support new home building, while maintenance and repair activity will gain from the strength of households’ appetite for home improvements and the need to retrofit buildings to meet the Government’s net zero ambitions. And the step-change in levels of public sector investment announced over the last year, including spending on infrastructure projects like HS2, will further boost activity.

“Whether the construction sector will be able to satisfy this strong demand by boosting supply is the chief uncertainty. Some EU workers returning home due to the pandemic has cut the availability of workers. And a synchronised global recovery in construction has pushed up the price – and reduced the availability – of key materials, such as cement, copper and steel. That said, supply-side challenges in the face of robust demand should give construction firms the impetus to innovate and boost efficiency in a sector which has struggled to grow productivity over the last 20 years.”