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Fri September 18 2020

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March activity index: The collapse of UK construction begins

6 Apr UK construction industry activity in March 2020 fell to its lowest level for nearly 11 years, and – as is by now patently obvious – there is worse to come.

Image by Brigipix from Pixabay
Image by Brigipix from Pixabay

March data pointed to the steepest downturn in UK construction output since April 2009 as emergency public health measures to halt the spread of Covid-19 led to sites closing and a slump in new orders.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index dropped to 39.3 in March from 52.6 in February. Anything below 50 indicates a fall in activity – and 39.3 is, in this context, a very long way from 50.

The index dropped below 30 at the worst point of the 2008/09 recession. When April 2020’s reading emerges in a month’s time, it seems likely it will be back down there (or worse).

Civil engineering activity (index at 34.4) saw the steepest rate of decline in March, followed closely by commercial building work (index at 35.7). Perhaps surprisingly, given that housing developers have been more ready to suspend work than other clients, residential activity dropped at a comparatively modest pace in March, with the equivalent index posting 46.6. However, there is firm expectation among respondents the house-building index for April will be much lower.

Construction companies recorded intense supply chain pressures in March as the Covid-19 pandemic resulted in reduced capacity and shortages of stock among vendors. The latest lengthening of lead-times among vendors was the steepest recorded since October 2014.

Input buying dropped at the fastest rate for six months. Average cost burdens continued to rise in March, although the rate of inflation moderated since the previous survey period amid softer demand conditions and lower commodity prices.

Unsurprisingly, the latest data indicates a slump in business expectations across the UK construction sector. Survey respondents are more pessimistic about the year ahead outlook than at any time since October 2008.

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Tim Moore, economics director at IHS Markit, which compiles the survey, said: “March data provides an early snap-shot of the impact on UK construction output from emergency public health measures to halt the COVID-19 pandemic, with activity falling to the greatest extent since the global financial crisis.

"The closure of construction sites and lockdown measures will clearly have an even more severe impact on business activity in the coming months. Survey respondents widely commented on doubts about the feasibility of continuing with existing projects as well as starting new work.

"Construction supply chains instead are set to largely focus on the provision of essential activities such as infrastructure maintenance, safety-critical remedial work and support for public services in the weeks ahead."

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, added: "The battered construction sector was offered a brief respite in February with a marginal rise in output after a difficult year, but any hope of a continuation of growth was mercilessly bulldozed away in March and construction companies registered their lowest levels of optimism since October 2008.

"As measures to contain the coronavirus COVID-19 pandemic were put in place across the UK, construction sites closed and builders lost their jobs on a frightening scale as overall activity fell to an extent not seen since April 2009. New orders were reduced to a trickle as the scale of the disease dawned on clients and lockdown severely hindered any further progress.

"With no upturn in sight, and with the fastest level of layoffs since September 2010, the sector is stuck in quicksand and sinking further. Though lower commodity prices will bring some relief for those that can source a limited number of materials amidst disrupted supply chains, this will be cold comfort without sites to work in and staff available as health concerns remain. The brutality of this impact cannot be underestimated, and the sector has not hit rock bottom yet."

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