Coronavirus Economy: UK Construction Industry Suffered Historic Collapse In April

The British construction industry suffered its worst decline ever in April as many companies shut down their building sites due to the coronavirus pandemic.

The purchasing managers’ index of IHS Markit/Chartered Institute of Procurement & Supply for the construction sector plunged from 39.3 in March to 8.2 in April, the lowest figure ever recorded and far below the prior record low of 27.8 in February 2009.

Some 86% of U.K. building firms reported a drop in their business activity since March, with residential and commercial construction sectors enduring the worst declines.

“Though a fall in output was not a complete surprise, the scale and suddenness of the drop has knocked the wind out of building work in the U.K.,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply. "More vulnerable than other sectors that make up the U.K. economy, construction was unable to continue in any significant capacity, as companies grappled with furloughed staff and building sites under complete shutdown.”

Construction firms were also hampered by shortages in materials and equipment due to suppliers and manufacturers having shuttered their own businesses.

“The rapid plunge in U.K. construction output during April stands out even in a month of record-low PMI data for the manufacturing and service sectors,” said Tim Moore, economics director at IHS Markit. “Widespread site closures and business shutdowns across the supply chain meant that vast swathes of the construction sector halted all activity in response to the COVID-19 pandemic.”

The slowdown in business has led numerous construction firms to furlough workers.

Some housebuilders and construction companies -- including Mace, Taylor Wimpey, Vistry Group (formerly Bovis Homes) -- have gradually begun to reopen their work sites.

“A drop in construction activity of historic proportions in April looks set to be followed by a gradual reopening of sites in the coming weeks, subject to strict reviews of safety measures,” added Moore. “However, the prospect of severe disruption across the supply chain will continue over the longer term and widespread use of the government job retention scheme has been needed to cushion the impact on employment.”

Brock warned it may take many years for the British construction industry to recover from this crisis.

“For a sector still not fully recovered from the skills shortages created by the financial crisis in 2008, the vacuum of output created by the pandemic has knocked the sector back another decade,” he said.

For some construction workers, maintaining 6-foot social distancing might prove to be impossible at crowded, busy worksites.

“Today we found out that social distancing has also brought construction activity to a complete halt," said Capital Economics analyst Thomas Pugh. "That indicates that the construction sector has been hit even harder than the services sector.”

Many observers will look to the Bank of England (which will reveal its latest policy statement on Thursday) and the U.K. government for some guidance on how to weather this economic catastrophe.

"The Bank of England looks unlikely to deliver any further stimulus on Thursday," said Howard Archer, chief economic advisor to the EY ITEM Club, an economic forecaster. "However, it is highly likely that the Monetary Policy Committee will make clear that it is ready and willing to take further stimulative action should economic circumstances or financial market conditions warrant.”

David Madden, an analyst at CMC Markets, said: “The British economy has been hit very hard by the pandemic, and as bad as the economic reports are, we will probably see even worse ones in the next month or so. There is a sense the worst of the lockdown is over, and that we could see a loosening of restrictions in weeks, and that should pave the way for more companies and sectors to reopen for business.”

Madden added that he thinks the Chancellor of the Exchequer Rishi Sunak is “looking to phase out the furlough scheme as he foresees some people going back to work in the near-term.”

Robert Jenrick, the secretary of state for housing, communities and local government, said on Wednesday that U.K. construction firms should get back to work when they think it is safe to do so.