Construction industry outperforms UK economy

The British construction industry outperformed the economy as a whole in January 2021, with private commercial new work leading the way. That growth continued through February to 53.3%, according to the the latest IHS Markit/CIPS UK Construction Total Activity Index, up from January’s figure of 49.2%.

This is the sharpest rise in commercial work since last September as construction regained its place as the fastest growing private sector output. The success of the vaccine rollout has driven contract awards on projects that have been put back since earlier in the pandemic.

Total construction

The value of total construction in January reached £13,639m according to the ONS, which was a return to overall growth after December dipped by 2.9%. The 4.5% growth in new commercial work helped to drive an overall increase of 1.7%. Paul Fenner, head of construction at BDO, said it showed the construction sector was firmly back on track, with the industry showing remarkable resilience in the face of the global pandemic.

Fenner said there was a growing confidence that the worst was now behind the trade, a sentiment echoed by Fraser Johns, finance director at contractor Beard. He said clients were now looking to rollout investments as quickly as possible. The vaccine rollout and timeline for the end of lockdown had contributed to a new confidence in the industry, Beard said.

Four point jump

The Purchasing Managers Index has also jumped by four points in February as a result of an increase in commercial activity. As spring approaches, demand is picking up quickly as clients make the decision to push ahead with projects.

The solid return to growth saw new order volumes increase for the ninth consecutive month as expansion started to accelerate in February. New opportunities in the commercial sector and increased public sector infrastructure spending have been critical to the resurgence of the construction sector. The rate of job creation is the greatest since March 2019.

Although the industry is still yet to return to pre-pandemic levels of activity, ongoing issues have not dampened builder enthusiasm, with optimism at the highest rate since October 2015. Job hiring is also at its fastest rate for almost two years.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, is also confident that the worst of the Brexit issues that were squeezing the supply chain are now past. He added that with furlough options now in place, constructors could mix and match to meet capacity over the months ahead.

With the Chancellor’s budget setting the agenda, the construction industry will need to work together with the public sector to maximise opportunities across the board as lockdown begins to ease.

With the BDO’s latest survey showing that 85% of construction firms are showing renewed confidence for the year ahead, the green shoots of recovery may soon be burgeoning even further. However industry figures cautioned that firms will need to maintain strict financial discipline and a tight rein on spending until the recovery strengthens further.