Construction industry recovery loses steam

A lack of new work held up the pace of growth in construction in August but firms tended to be optimistic about the future

The recovery in the construction industry lost momentum last month as companies warned of a lack of new work.

A closely watched survey of business activity sank in July, indicating the pace of growth slowed. IHS Markit's purchasing managers' index slipped to a reading of 54.6, from 58.1 in July. Any score higher than 50 signals expansion. 

The sector accounts for about 6pc of Britain's economy. Construction output collapsed by more than 40pc in March and April and since building sites began reopening in May, the path back to pre-pandemic activity levels has been long. The lockdown weighed heavily on construction supply chains, leading to widespread shortages of materials. 

Tim Moore, economics director at IHS Markit, said the main reason for the fall in growth was “a reduced degree of catch-up on delayed projects and subsequent shortages of new work to replace completed contracts in August”.

Construction companies said "economic uncertainty and a wait-and-see approach among clients" had limited opportunities to secure new contracts. They also reported a further decline in staffing numbers, although the rate of job shedding had “eased slightly” since July.

Firms reported an improvement in their outlook, with 43pc of respondents saying they expect a rise in output over the next year, compared to only 19pc predicting a fall.

"Even with all these obstacles, builders were at their most optimistic since the beginning of the year,” said Duncan Brock of the Chartered Institute of Procurement and Supply. "This glass-half-full attitude will have to carry companies into the autumn as the UK economy remains delicate and susceptible to more turbulence."

Housebuilding drove growth, ahead of commercial activity and civil engineering, the latter of which recorded a fall in output.

It came as fresh data from the banking industry indicated the housing market may be on course for a strong recovery in the third quarter as a backlog of delayed sales went through.

After the English housing market reopened in May, estate agents reported a surge in enquiries and viewing requests as customers temporarily unable to look for a new home restarted the process, according to a report by banking body UK Finance.

However, the organisation cautioned that “as lockdown is progressively eased we are likely to see any rebound more delayed for homemovers” because chains of home buyers “may take longer to regroup and, in some cases, may not complete at all, at least not in their original composition”.

“If a household lives in a property which is well suited for lockdown conditions and homeworking (for example good Wi-Fi, spare bedroom, garden) these prospective buyers may be less willing to compromise than they may have been, pre-lockdown,” the report added.

Separately, property developer Berkeley held firm on its profit forecasts for the year after better-than-expected production levels following the pandemic. The company said trading had been "resilient" in recent months, predicting that it would still report pre-tax profits of around £500m for the full year.