UK construction sector downturn eased in May, as construction sites gradually reopen and lockdown measures begin to loosen, according to the latest construction PMI
The UK construction sector indicated a sustained downturn in business activity during May.
At 28.9 in May, the seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index picked up from 8.2 in April, but was the second-lowest since February 2009.
Any figure below 50.0 indicates an overall decline in output.
Around 64% of the survey panel reported a drop in UK construction activity during May, while only 21% signalled an expansion. Where growth was indicated, this was mostly attributed to a limited return to work on site following shutdowns in April.
Construction companies recording a drop in activity during May often cited furloughed staff across the supply chain, as well as lengthy business closures in other parts of the economy and disruptions from social distancing measures on existing projects.
Residential work was the most resilient category in May (index at 30.9), followed by civil engineering (28.6). Commercial building also fell at a slower pace during the latest survey period, but was the worst performing broad area of construction (26.2).
‘The most challenging environment for generations’
Duncan Brock, group director at the Chartered Institute of Procurement & Supply: “The construction sector suffered one of its worst results in May since the PMI surveys began as building work was grounded by the pandemic and lockdown measures.
“Spending was slashed as clients continued to stonewall building firms and put new projects on hold. With furloughed staff across the supply chain, companies saw their capacity leak away and the construction sector now faces the most challenging environment for generations.
“Building materials were in constrained supply as vendors gradually reopened in May, while items such as personal safety equipment were difficult to source.”
Brock added: “As the sector staggers back to work, and builders put their heads above the parapet, they face a number of obstacles.
“New safer working practices will ensure operations can continue but client confidence to place new orders is harder to predict.
“As the furlough scheme is unravelled towards the end of the summer, the floodgates preventing redundancies may also fly open and job losses will follow without a strong pipeline of work waiting in the wings. It will take a long time for the sector to build strength from the ruins of Covid-19.”
‘Cut VAT and stamp duty’
In response to the release of the UK construction PMI, Brendan Sharkey, head of construction and real estate at MHA MacIntyre Hudson, said: “We’re starting to see an uplift in activity but more activity does not necessarily mean more profit.
“Housebuilders in particular will be looking over their shoulders at the unemployment figures. If unemployment starts to rise we’ll see a corresponding fall in demand for new properties, which would ultimately lead to redundancies at construction sites.
“Businesses are treading carefully and don’t want to spend more than they have – cash is king. It’s positive that firms are watching their cashflow carefully, but of course a lack of investment will also work against any sudden uptick in demand.
“To help smooth the path back to profitability the government should lower VAT and stamp duty to stimulate the housing market, and invest in infrastructure. It should also delay again the imposition of the domestic reverse VAT charge, currently scheduled to kick in on 1 October 2020.
“The reverse charge is not so onerous that it will itself cause businesses to fail but many companies have failed to adequately prepare for it. As the reverse charge directly impacts cashflow it could bring down otherwise viable but ill-prepared companies. Given it has already been delayed once, in less trying circumstances, logic suggests the government should press pause again.”
