Construction recovery continues in December

Stronger order books helped to drive the recovery across the construction sector, with survey respondents citing work on projects that had been delayed earlier in 2020.

Higher levels of demand led to a slight rise in employment numbers and greater demand for construction inputs in December. However, stretched supply chains and delays at UK ports resulted in longer delivery times and the fastest rate of input cost inflation since April 2019.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index posted a score of 54.6 in December, little-changed from 54.7 in November and above the crucial 50.0 no-change threshold for a seventh consecutive month.

Increased construction activity was led by another sharp rise in house-building during December (scoring 61.9). Commercial activity also expanded (51.2), but at its slowest rate since the recovery began last June. Civil engineering was the weakest-performing category (48.0), with activity falling for the fourth time in the past five months.

Total new orders increased at a strong pace in December, the survey found, for the seventh month running. Survey respondents noted improving client demand, alongside a boost from new business wins on construction projects that had been deferred at the start of the pandemic.

Purchasing prices increased at the steepest pace for nearly two years, reflecting supply shortages and rising demand. Survey respondents often cited rising prices for timber and steel.

Interviewed before the third national lockdown was called, 50% of the survey panel forecasted a rise in business activity over the course of 2021, while only 10% anticipated a decline, thus signalling the strongest optimism across the construction sector since April 2017. (That positive sentiment may have changed in the past week, however.)

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Tim Moore, economics director at IHS Markit, which compiles the survey, said: “December data illustrated a positive end to the year for the UK construction sector, mostly fuelled by a sharp rebound in house building. 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.

“A sustained improvement in construction order books resulted in a rise in employment numbers for the first time in nearly two years and the most optimistic growth expectations since April 2017. 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.

“Transport delays and a lack of stock among suppliers were the main difficulties reported by UK construction firms at the end of 2020, which contributed to the fastest rise in purchasing prices for nearly two years.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Some positive news for the construction sector in December as the uplift from summer’s close continued through to the end of 2020 and new order levels increased for the seventh successive month. Long-term prospects came to fruition and halted projects started again as clients became more optimistic after the covid hiatus. To meet this demand head-on, builders opted for job creation for the first time in 21 months to increase previously pared-back capacity.

“Further down the line, with purchasing growth close to its highest for six years, supply chains were groaning at the seams and delivery times increased to the most dramatic extent for six months. Low availability for finished products and raw materials as a result of port disruptions added to builders’ woes as suppliers named their price for goods in acutely short supply and input price inflation increased to its highest level since April 2019.

“Once again residential building was the strongest sector and construction companies focussed on this segment seem resilient for now. As the appetite for building resources grows in the first quarter of the year however, suppliers will find it difficult to ramp up production quickly to pre-pandemic levels, so we could see even longer delivery times potentially delaying some building projects as post-Brexit disruption also remains an ever-present threat.”

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