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The independent London newspaper

UK construction companies bounce back after ‘beast from the east’

21 May, 2018

The notorious ‘beast from the east’ wreaked havoc on the UK’s construction sector in March, as brutal winter weather forced the closure of numerous building sites. However, the sector, which makes up 6% of the country’s economy, clocked up a recovery in growth during April.

Growth that beats expectations after a choppy March

The Market/Cips UK construction purchasing managers’ index, deemed a bellwether of the sector’s economic performance, grew to 52.5 in April. Any reading above 50 indicates growth, and the figure was surprisingly healthy in light of economists’ expectations of a 50.5 score instead.

Especially crucially, the recorded figure shows that the construction sector has returned to growth after a brief spell of recession indicated by a PMI of 47 in March. That slump was widely attributed to the ‘beast from the east’, effects of which hindered the practicality of much construction work.

The report of the PMI’s reassuring rise was compiled by IHS Markit. Tim Moore, the associate director of the information services company, commented: “A rebound in construction activity was pretty well inevitable after snowfall resulted in severe disruptions on-site during March.”

A mixed picture for the construction industry

While the overall PMI score has given cause for optimism, a closer look at the details paints a more muddled picture. Moore observed: “Housebuilding led the way, with growth in April among the strongest seen over the past two and a half years. However, the picture was less positive in other areas of construction, with commercial building and civil engineering work rising only marginally.”

Moore also said that clients had become more risk-averse with their spending plans due to increased economic uncertainty. Samuel Tombs, chief economist at Pantheon Macroeconomics, warned that “the construction sector will be hurt by a planned 5.4% year-over-year reduction in public sector gross investment in this fiscal year.”

Tombs acknowledged that the housing PMI increased to 57.4 after a comparatively quiet 51.1 in the preceding month. However, other, more concerning figures shared by Tombs and quoted by The Guardian reveal that “the PMIs for the commercial and civil engineering sectors rose only to 51.2 and 51.5 respectively, from 46.4 and 43.6 in March.”

A narrative of an industry long remaining economically subdued

In February, the sector’s overall PMI was 51.4. This was a modest growth from the January figure of 50.2; however, it still led Duncan Brock of the Chartered Institute of Procurement & Supply to complain of a sector “feeling as flat as a pancake”, as quoted by the Independent.

On that occasion, Brock also deplored “falls in new orders for the second month in a row”. The sector had already entered recession in the closing three months of 2017. According to estimates by the Office for National Statistics, aggregate construction output fell by 0.7% during that period.

In reference to the March figures revealed by the Markit/Cips survey of over 170 construction firms, Tombs has sounded a note of caution about the Brexit effect. He claimed that both the commercial and civil engineering sectors “likely will remain depressed until some clarity emerges over the UK’s long-term relationship with the EU.”

Tombs also warned that, even taking into account the performance in March, “the odds of the construction sector enjoying a sustained recovery this year still look remote.” These trying times will put the onus on construction firms to minimise their expenditure while maximising their output.

Insurance is one example of an unavoidable cost for many businesses. However, a specialist broker like Be Wiser Business Insurance, based in Hampshire, could help these companies to break the deadlock in an otherwise fruitless search for cost-effective insurance policies.

 

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