RFM Viewpoint: Delving into the Construction Industry January 2021

Each month RFM Group’s team of property experts explore and explain what is driving the UK property market, providing insider insights and industry knowledge.

The construction industry rounded off a particularly difficult year on a more positive note with the latest IHS Markit/CIPS UK figures showing a sustained rebound in business activity.

In its December report, the Construction Total Activity Index posted 54.6 in December compared to 54.7 in November.  Anything above 50 represents growth and the index rose beyond that crucial level for the seventh month in a row.

Construction trends continue 

As has been the case in recent months, housebuilding is leading the way with another sharp rise during December, with the index now at 61.9.  Commercial activity also expanded to 51.2, albeit at the slowest rate of growth for six months.  At the opposite end of the scale, civil engineering has been the weakest performer at 48.0, with activity falling for the fourth time in a five-month period.

New Orders Grow with Client Demand

New orders grew strongly in December with firms highlighting improving client demand alongside a boost from new business wins on construction projects that had been deferred at the start of the pandemic.  The increase in demand led to a slight rise in employment numbers and a greater demand for inputs in December.  However, this was countered by stretched supply chains and delays at UK ports resulting in longer delivery times and the fastest rate of input cost inflation since April 2019.

2021 Construction is Forecast to Rise

Exactly half of the survey panel (50%) forecast a rise in business activity over the course of 2021, while only 10% anticipate a decline, which signalled the strongest optimism across the construction sector since April 2017.  However, it’s important to note that this data was compiled before the current lockdown took effect.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: “Overall output growth has slowed in comparison to the catch-up phase last summer, but now it is encouraging to see the recovery driven by new projects and stronger underlying demand.  Construction companies are hopeful that higher demand will broaden out beyond residential projects in the next 12 months, led by infrastructure spending and a potential rebound in new commercial work from the depressed levels seen during the pandemic.”