Unprecedented decline in construction eases in May but gloom remains – survey

The gradual reopening of Britain’s building sites helped slow an “unprecedented” contraction in the construction sector last month but firms remained gloomy as new work plummets, according to a report.

The closely followed IHS Markit/CIPS construction purchasing managers’ index (PMI) rose to 28.9 in May from an all-time low of 8.2 in April.

But the reading was still the second lowest on record since February 2009 and, with any score below 50 showing a contraction in activity, suggests output is still firmly in decline.

The report found around 64% of construction firms reported a drop in activity during May while only 21% signalled an expansion as the sector began a phased return to work on site following shutdowns in April.

A rapid drop in new building projects also saw optimism in the sector remain at its lowest levels since the financial crisis.

The construction figures follow PMI reports for manufacturing and services in recent days, which gave an all-sector composite reading of 30 for May, signalling another cliff-edge contraction in the wider economy last month.

Britain is expected to be heading for its worst recession in 300 years as the lockdown forced large swathes of the economy to shut.

The construction sector was one of the few sectors able to continue, albeit with social distancing measures, but many firms chose to close sites until measures could be put in place.

Prime Minister Boris Johnson eased restrictions further in May, encouraging sites to resume work where possible, though the sector faces an uphill struggle with its supply chain and projects being shelved.

Tim Moore, economics director at survey compiler IHS Markit, said: “A gradual restart of work on site helped to alleviate the downturn in total UK construction output during May, but the latest survey highlighted that ongoing business closures and disruptions across the supply chain held back the extent of recovery.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), warned it will “take a long time for the sector to build strength from the ruins of Covid-19”.

He said: “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.”

The data showed housebuilding work was the most resilient category in May, followed by civil engineering.

Commercial building fell at a slower pace, but was the worst performing broad area of the sector.

Samuel Tombs, of Pantheon Macroeconomics, said: “A complete recovery in activity to pre-virus levels in the second half of this year remains highly unlikely.

“That said, the downturn in construction activity should be less deep and long-lasting than in the 2008-2009 recession, given that banks are better placed to supply credit through the recovery, and public sector investment will be increased, not squeezed.”