18Th August 2020 Construction Update 780 Px Web Banner

UK construction PMI beats expectations in July with a steep increase in activity and output


  • The IHS Markit/CIPS UK Construction PMI jumped to 58.1 in July 2020 from 55.3 in the previous month, beating market expectations of 57.0 and well above the 50 mark that indicates an improvement in monthly activity for most businesses. The PMI survey revealed:
    • Steep increase in construction activity and output
    • Residential building growth accelerated at the fastest pace since September 2014
    • Commercial work and civil engineering activity also rose at a faster pace
    • New orders increased the most since February, with respondents commenting on a boost to sales from easing lockdown measures and the restart of work on site
    • Employment continued to contract at a sharp rate
    • Input cost inflation reached its highest level since May 2019
    • Business confidence moderated since June’s survey, linked to concerns about the economic outlook and a lack of new work to replace completed projects
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  • The ONS’s latest quarterly GDP figures revealed that construction was the hardest hit sector of the UK economy in Q2 2020, contracting by 35%. However, after the 40.2% fall in April (caused by record declines in all types of work), output appeared to bounce back, growing month-on-month by 7.6% in May and then by 23.5% in June. In Q2, both new work and repair and maintenance output fell (by -35.2% and -34.7% respectively) but it was public new housing output that fell the most during the quarter (-56.2%).
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  • The ONS has released its construction new order data which shows that in Q2 2020 new orders fell by 51.1% compared to the previous quarter. The value of new orders for the period – £6,173m – was the lowest level of new orders since records began in 1964. All subsectors saw negative quarterly growth but the figures revealed that private sector demand was generally the hardest hit. Private sector housebuilding, which for years has been construction’s star performer, collapsed by more than half in Q2. With regard to new orders generally, Fraser Johns, finance director at construction contractor Beard, said:

“As the economy recovers and investor confidence returns, [new orders] will no doubt improve. This cannot come soon enough, however, and the Government’s ‘build, build, build’ message remains a vital one.”

  • EY has reported that 46% of contractors and materials firms listed on the London Stock Exchange issued profit warnings in the first half of this year (compared to nearly one-third of all of the UK’s listed companies). According to EY, 23 firms said that profits will be hit – up from the 12 who issued warnings in the same period last year, and added that 91% had said COVID-19 was the biggest reason for eating into the bottom line. Ian Marson, EY’s head of construction in the UK, said:

“While profit warnings have decreased in Q2 compared with Q1, construction is still a sector under stress. There is evidence of significant supply chain stress with an increased risk of vulnerability.”

  • An 84-page, Government-published white paper called ‘Planning for the Future’ has put forward a vision to radically overhaul England’s current planning system and replace it with zonal planning, centralised decisions and new local design codes. Although there are several hurdles to overcome before it becomes law, the proposals fall into three key headings (or ‘pillars’) - Planning for Development, Planning for Beautiful and Sustainable Places and Planning for Infrastructure and Connected Places. The themes of modernisation, streamlining and greater use of data/technology run throughout the paper to facilitate the delivery of 300,000 homes per year.


  • Balfour Beatty chief executive Leo Quinn unveiled the scale of the hit the pandemic has had on the country’s biggest contractor. The firm turned in a pre-tax loss for the first time in four years, slipping to a £26m loss in the six months to June 2020. He noted that social distancing has had a massive impact on productivity and that additional costs have been incurred from PPE. Mr Quinn said that COVID is still not over and that amid the uncertainty, it was a good time to have cash and a strong balance sheet. He also said the firm was seeing some rivals dropping prices to win jobs but emphasised that Balfour Beatty was not about to undo all the work it had undertaken in the past five years to repair its balance sheet:

“We will not take contracts on at any price...We won’t revert to the terms and conditions we accepted in 2013/14. We are not interested in volume.”

  • Builders Conference reported that both the number and value of contract awards picked up in July but were still significantly below pre-COVID levels. The average number of contracts awarded each month between July 2019 and March 2020 was 587. Last month, 430 contracts were awarded, a 4% improvement on the 415 awarded in June. But it was still 27% below the average and 30% less than July 2019. The value of contracts awarded rose by 50% in July to £5.4bn (June: £3.6bn), primarily driven by two large mixed-use developments with a combined value of £1.7bn. However, July’s value was still 13% lower than the monthly average of £6.2bn recorded between July 2019 and March 2020.
  • Data from Glenigan revealed that Royal Bam topped July’s contract win league table, having signed two road jobs with Highways England. The M54 to M6 Toll Link Road project (£200m) and the M40-M42 interchange with joint venture partner Morgan Sindall (£312m) meant that Royal Bam took a £439.8m haul for the month. A significant amount of work in July also came from the healthcare and logistics and warehousing sectors – the latter being earmarked by some as one of the few growth areas for the private sector over the next few years.
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  • Derwent plans to change its office development model to meet changing work patterns and employee needs. The new designs will feature ‘long-life loose-fit’ adaptable spaces, with wellness as a key consideration to enable people to meet together in larger common areas, including higher ceilings and better air quality and ventilation. Derwent's chief executive Paul Williams said in the war on attracting talent, employees would increasingly favour well-designed modern office space that provided good amenity and promoted wellbeing. Derwent continues to progress its largest pipeline office scheme at 19-35 Baker Street and also at No1 and No2 Soho Place in London which is due for completion in early 2022. G&T is providing Cost Management, Life Cycle Costing and Sustainability services on the Baker Street scheme and Project Management services at Soho Place.


  • After reporting a £52m pre-tax loss in the first half of 2020, brickmaker Ibstock has said that it will launch a restructuring and cost-cutting programme which includes a 15% cut in its workforce as well as closing (or mothballing) three clay manufacturing plants which will cost £10m this year but lead to £20m of annual savings in subsequent years. The trading update revealed that during April sales volumes in its clay division fell by around 90% year-on-year, whilst exposure to infrastructure and RMI markets meant that volumes in their concrete division remained relatively more resilient. Clay sales in June reportedly recovered to around about 60% of what they were a year ago while concrete sales were back to around 80% of what they were. Ibstock chief executive Joe Hudson said:

“The fundamentals for our markets remain positive, with a substantial housing deficit in the UK and Government policy which is supportive of the role the construction sector will play in the UK economic recovery.”

  • Heavy-side building materials sales volumes slumped in Q2 2020 according to the Mineral Products Association (MPA). Aggregates sales volumes were 38% lower, ready-mixed concrete (RMC) 39% and asphalt 28% on a quarterly basis. The swift closure of housebuilding sites as the lockdown was announced in March resulted in the mortar market suffering an even sharper fall in demand, with sales volumes down by 61% over the quarter. Overall, the impact of the COVID-19 lockdown on sales has been worse than the financial crash between 2007 and 2009.
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  • The Builders Merchant Federation (BMF) has suggested that plaster and some other key building materials continue to be affected by supply shortages, with ready availability unlikely to be re-established until mid-to-late September. UK manufacturers and merchants are currently working at full capacity to meet demand for plaster and that some are even importing from Poland and Portugal to meet demand. BMF chief executive John Newcomb said that at least some of the heightened demand may have been fuelled by ‘panic buying’. He also added that most supply problems are having more of an impact on merchants unable to fulfil orders than on housebuilders or contractors unable to complete work.


  • Following a 2.2% decline in the first quarter of 2020, the UK economy is officially in recession after GDP fell by 20.4% in Q2 2020. There were widespread contractions across all sectors as the pandemic appeared to hit the UK harder than many other developed economies. Analysts said the UK’s underperformance was partly due to the length of its lockdown and partly because the consumer-facing services sector, that was hardest hit by social distancing, has a bigger weight in GDP, accounting for 80% of the economy. However, the economic recovery did gain momentum in June, with output growing by 8.7% month-on-month.
  • Almost 750,000 jobs have been shed since the start of the lockdown, representing a 2.5% fall in the number of employees on UK payrolls. The headline unemployment rate for April to June was 3.9%, covering the UK’s lockdown period that began in late March. However the data is unlikely to show the true extent of job losses caused by COVID-19 because of the Government’s Job Retention Scheme. In its latest Monetary Policy Report, the Bank of England forecasts that unemployment will peak at 7.5% by the end of the year.
  • UK retail sales remained robust in July with sales by value increasing by 3.2% compared with the same month in 2019. This is the second consecutive month of growth following three months of falling sales according to KPMG and the British Retail Consortium. Online purchases accounted for 42% of all sales in July, a smaller share than the 50.5% recorded in June, suggesting that more consumers were returning to shops and were less reliant on home deliveries.


  • Chinese exports rose 7.2% in dollar terms compared to the same month a year earlier. The increased trade activity is indicative of higher demand for Chinese goods, reflecting stronger global demand and signalling that other economies are also beginning to emerge from the early stages of the crisis even as global trade levels remain depressed. According to the Caixin China general manufacturing purchasing managers’ index, factory activity in China also jumped at its fastest rate for nine years in July.
  • Eurozone factory output rose 9.1% in June suggesting that the region’s manufacturers are bouncing back from the heavy blow of the coronavirus pandemic. However, industrial production was still down more than 12.3% from a year ago in a sign that the region’s factories are still struggling to recover fully from the pandemic. Economists are sceptical that output growth is sustainable, arguing that after the summer there won’t be the tailwinds of pent-up demand.

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