UK construction rebound slows as new orders dry up

Britain’s post-lockdown construction rebound has already begun to cool as economic uncertainty hits firms’ new orders, according to industry data.

A bellwether survey of construction chiefs showed a fourth month of expansion in August, but at a lower pace than the previous month when analysts had expected momentum to keep growing.

The headline figure on a widely watched purchasing managers’ index (PMI) for the sector came in at 54.6 last month, down from a strong 58.1 in July.

Figures above 50 suggest most firms are growing, and below 50 shows a decline. The index is based on a survey carried out by data providers IHS Markit and the Chartered Institute of Procurement & Supply (CIPS).

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Firms have been buoyed by not only Britain’s housing mini-boom, but also pent-up post-lockdown demand, the reopening of building sites and supply chains, and the easing of lockdown in most of the country. Last month’s figures had shown the fastest rebound in activity in five months.

Housebuilding showed continued strong growth, but a slower rate than July and most civil engineering firms saw work decline.

“Construction companies noted that economic uncertainty and a wait-and-see approach among clients had limited their opportunities to secure new work,” said the PMI report published on Friday.

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Firms highlighted some continued supply chain disruption from COVID-19, with stock shortages pushing up material prices at the highest rate since April last year.

Employment levels continued to sink for a 17th month in a row, easing slightly on the previous month’s figures but still falling at one of the fastest rates in the past decade.

"The latest PMI data signalled a setback for the UK construction sector as the speed of recovery lost momentum for the first time since the reopening phase began in May," said Tim Moore, economics director at IHS Markit.

But Ben Dyer, CEO of Powered Now, a payment services firm specialising in trades, told Yahoo Finance UK many of its clients still had full order books and were operating close to capacity. He said it was “encouraging” the latest figures showed a continued recovery, calling analysts’ expectations of faster growth were “unrealistic.”

Joshua Mahony, senior market analyst at IG, said the stamp duty holiday would boost housebuilding for the next few months.

But Mahony noted: “With the new year bringing a potential hard Brexit and a declining chance of pushing through deals before the stamp duty deadline, there is a strong chance this housing boom will be a short-term phenomenon.”

Many firms are now pinning their hopes on demand for major infrastructure projects and public sector construction holding up, with prime minister Boris Johnson talking up construction’s role in a hoped-for economic recovery.