Housing leads rebound in construction output in June

Residential construction was the strongest performing sector as construction experienced a widespread rebound in workloads in June, according to the latest construction purchasing managers’ index.

The monthly index, drawn up by the Chartered Institute of Purchasing and Supply (CIPS) and IHS Markit, reported an expansion in output in June for the first time since the coronavirus lockdown was announced, with an overall index score of 55.3, up from just 28.9 in May.

A score of more than 50 in the index represents growth. The index fell as low as 8.2 in April in the depth of the crisis.

For housing specifically, however, it said that far more respondents reported growth than contraction, with 46% reporting increased housing activity, compared to just 27% experiencing a reduction. This was the most widespread growth seen in the last five years, the survey stated.

However, in comparison to the unprecedented breadth of falls in output seen during the lockdown, the return to growth is within normal bounds, and it will be seen as concerning that some in the sector are still reporting a contraction in construction activity despite the re-opening of sites and the housing market from early May onwards.

The signs of recovery comes amid report chancellor Rishi Sunak is poised to announced a stamp duty cut in his planned economic statement on Wednesday.

The index said the phased restart of work on site had helped to lift output volumes and boost business confidence. 

At the same time, new orders stabilised after three months of sharp declines and purchasing activity expanded at the fastest rate since December 2015.

Overall, the latest reading signalled the steepest pace of expansion since July 2018. 

Commercial work and civil engineering activity also returned to growth in June, although the rates of expansion were softer than seen for house building.

Max Jones, relationship director in Lloyds Bank Commercial Banking’s infrastructure and construction team, said the government’s recommitment to investing in infrastructure would further bolster sentiment.

He said: “Firms remain mindful of how cyclical construction is, generally tracking the ups and downs of the wider economy. The prime minister’s speech last week will have pleased those hoping for a recovery driven by schemes spread evenly across the country, rather than focused on a few megaprojects.

“Yet shovels need to hit the ground to ameliorate short-term liquidity challenges that are prevalent in an industry which continues to operate on wafer-thin margins.”

Mark Robinson, chief executive of Scape Group, said while there were some signs of recovery, few in the industry would be getting too excited given it was largely a result of the progressive easing of lockdown restrictions. 

Robinson said: “The path to sustainable growth remains unclear and we need a long-term view of the future. As we start to see the true economic impact of covid-19, this has never been more important.”