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RFM Viewpoint: Delving into the Construction Industry September 2020

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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.

Construction output has once again slowed down according to new data released by IHS Markit for August.  On the back of a near five-year high reported in July 2020, recovery has stalled with a lack of new contracts impacting post-lockdown recovery.

brown brick building beside road during daytime

Construction Recovery Stalled

The IHS Markit/CIPS UK Construction Total Activity Index, which is a diffusion index that tracks changes in the total volume of construction activity compared with one month previously, registered 54.6 in August.  This is down almost 4 points from July and is the weakest figure of the prior three months, however any figure above 50.0 is still considered growth.

Continuing at the pace seen last month, housebuilding is showing the most positive growth since the pre-Covid period, however this has slowed slightly.  The equivalent figures for commercial work, 52.5, and civil engineering activity, 46.6, were notably weaker than the headline index in August, with the latter actually contracting.

All three broad categories of construction provided a weaker contribution to the headline index in comparison to those seen in July.

Construction New Business Up for the Third Month

New business volumes have increased for the third month running during August, albeit modestly, representing the reluctance from investors to commit to long-term projects.  This was tempered, however, with more optimism from survey respondents who are reporting increasingly positive trends in their order books.

brown wooden ladder on blue plastic container

Supply Chain Problems

Ongoing issues with supply chain continue to cause issues with vendor performance as nationwide shortages and an imbalance of supply and demand continue to bite.  This is seen to be contributing to higher purchasing costs which in turn is driving up the overall rate of price inflation to its highest point since April 2019.

 

“Another month of widespread job shedding highlighted the ongoing difficulties faced by UK construction companies, with order books often depleted due to a slump in demand from sectors of the economy that have experienced the greatest impact from the pandemic.”

Tim Moore, Economics Director, IHS Markit Tweet

Halted Projects

Despite green shoots of optimism concerning future projects, the immediate reality of halted projects, supply issues and cost-management is still impacting jobs in the sector.  There is been a further decline of staffing levels in August; although this has slowed slightly since last month, it is still amongst the weakest seen since the global financial crisis.  Low payroll numbers are being attributed to increased redundancies and layoffs due to lack of work and an end to the government-supported furlough scheme.

Tim Moore, Economics Director at IHS Markit, said: “Another month of widespread job shedding highlighted the ongoing difficulties faced by UK construction companies, with order books often depleted due to a slump in demand from sectors of the economy that have experienced the greatest impact from the pandemic.”

What does the remaining part of 2020 have instore? It will no doubt be a challenging time and it is import to flexible to adapt to market changes.

 

In case you missed it you can read last month’s edition here: 

RFM Viewpoint: Delving into the Construction Industry August 2020

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