Market news

4 June 2020

UK construction sector downturn eases in May

According to the report from IHS Markit/CIPS, UK construction companies indicated a sustained downturn in business activity during May. The latest survey highlighted a softer pace of decline than the record slump seen in the previous month, largely reflecting a gradual reopening of construction sites as lockdown measures were eased in England.

At 28.9 in May, the headline seasonally adjusted 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 construction activity during May, while only 21% signalled an expansion. Where growth was reported, 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 prolonged 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). 

May data also indicated a rapid drop in new orders received by UK construction companies, which was almost exclusively attributed to the coronavirus disease 2019 (COVID-19) pandemic. Survey respondents commented on a sharp decline in demand for new construction projects, although some noted that the reopening of sites had helped to alleviate the scale of the downturn in order books.

Looking ahead, construction companies remain downbeat about their prospects for the next 12 months, with sentiment holding close to April's low. Recession worries and fears of postponements to new projects were commonly reported in May.

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