Activity in the UK construction sector unexpectedly expanded in June

According to the report from IHS Markit/CIPS UK, June data pointed to a sharp turnaround in the performance of the UK construction sector as the phased restart of work on site helped to lift output volumes and boost business confidence. At the same time, new orders stabilised after three months of sharp declines and purchasing activity expanded at the fastest rate since December 2015.

The headline seasonally adjusted UK Construction Total Activity Index jumped to 55.3 in June, from 28.9 in May, to signal a strong increase in total construction output. Moreover, the latest reading signalled the steepest pace of expansion since July 2018. Higher levels of business activity were overwhelmingly linked to the reopening of the UK construction supply chain following stoppages and business closures during the early stages of the coronavirus disease 2019 (COVID-19) pandemic.

Residential building was the best-performing area of construction activity in June. Around 46% of survey respondents noted an increase in housing activity, while only 27% experienced a reduction. The latest expansion of residential construction work was the steepest for just under five years.

Commercial work and civil engineering activity also returned to growth in June, although the rates of expansion were softer than seen for house building. New business volumes increased marginally in June, which ended a three-month period of decline. However, the rate of new order growth was far weaker than seen for business activity, reflecting ongoing hesitancy among clients and longer lead-times to secure new contracts. A number of construction firms noted that new work related to infrastructure projects was a key source of growth in June.

The index measuring business expectations for the year ahead remained historically subdued, but climbed to its highest since February amid a boost from the reopening of work on site. Exactly 46% of the survey panel anticipate a rise in business activity, while 31% forecast a reduction. The latter mostly commented on concerns about the wider UK economic outlook. Severe supply chain disruptions continued in June, reflecting stronger demand for construction inputs and ongoing reports of constrained materials availability (especially plaster). This resulted in another rise in purchasing costs, with the rate of inflation accelerating to its highest since the start of 2020.