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Construction industry lead economy rebound

The monthly survey of construction purchasing managers indicated a sharp increase in output volumes in June. New orders stabilised after three months of steep declines and purchasing activity expanded at the fastest rate since December 2015. But while housebuilders increase activity during lockdown, job cuts in the industry are still likely to follow.

According to the bellwether IHS Markit/CIPS UK survey, house building was the best-performing area of construction activity in June, after falling the furthest during the lockdown. Around 46% of survey respondents noted an increase in housing activity, however, more than a quarter (27%) reported than their house-building activity in June was even lower than it had been in May.

After three months of decline, new business volumes increased, but only marginally, suggesting that clients remain hesitant and lead-times are lengthening. Several construction firms noted that new work related to infrastructure projects which were a key source of growth in June.

Despite output improvement month on month, it is clearly still down on where it was before the Covid-19 crisis hit and construction companies are now losing staff as the long road to recovery begins.

Tim Moore, Economics Director at IHS Markit, which compiles the survey, said: "As the first major part of the UK economy to begin a phased return to work, the strong rebound in construction activity provides hope to other sectors that have suffered through the lockdown period. While it has taken time for the construction supply chain to adapt and rebuild capacity after widespread business closures, there is now clear evidence that a return to growth has been achieved.

"While some survey respondents commented on cautious optimism about their near-term prospects, construction companies continued to face challenges securing new work against an unfavourable economic backdrop and a lost period for tender opportunities. At the same time, operating expenses are rising due to constrained capacity across the supply chain and the impact of social distancing measures.

"Looking ahead, construction firms are more confident than at any time since the start of the COVID-19 pandemic. However, the ongoing reductions in staffing numbers seen in June provide a stark reminder that underlying conditions across the sector are a long way off returning to those seen before the public health emergency."

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References: https://www.cips.org/supply-management/news/2020/july/construction-rebounds-as-purchasing-hits-five-year-high/