UK construction sector activity showed strong recovery in March

UK construction activity expanded at the fastest pace in more than six years in March while other business measures recorded improvements, fuelling hopes of a milder economic contraction in the first quarter of this year than during the first lockdown.

The IHS Markit/Cips UK construction purchasing managers’ index rose to 61.7 in March, from 53.3 in February, the sharpest pace of growth since September 2014.

This was much higher than the 54.6 forecast by economists polled by Reuters and well above the 50 mark that indicates a majority of businesses reporting an expansion on the previous month.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Construction was full of the joys of spring in March with a sudden leap into solid growth fuelled by across-the-board rises in workloads in all sectors.”

Housebuilding was the best-performing category, at 64.0, supported by the stamp duty holiday that has boosted the housing market since its launch in July. Under the measure, which in March was extended until June, buyers pay no duty on the first £500,000 of residential purchases.

Commercial construction and civil engineering also reported growing activity after prolonged downturns. Survey respondents commented on the mobilisation of delayed projects, especially in areas such as hospitality, leisure and office development.

The strong activity also boosted the sector’s fastest rate of job creation in more than two years, and comes after the PMIs for services and manufacturing showed similar jumps in March.

The figures were released as the Office for National Statistics published indicators that revealed the UK economy improved in March compared with January’s low, providing signs that businesses and consumers had adapted to the restrictions in the latest lockdown and that activity improved ahead of the reopening of many businesses in mid-April.

The proportion of businesses that were open in late March was 75 per cent, up 4 percentage points compared with early January. This is similar to the level in July 2020 despite most client-facing services still being shut in late March.

Businesses also reported better sales, with the share of those experiencing a decrease in turnover compared with normal levels falling to 40 per cent in mid-March 2021 from 46 per cent in January.

The improvement in business measures reflected higher consumer spending. In the week to April 1, debit and credit card purchases increased by 10 percentage points from the previous week to 88 per cent of its February 2020 average. This is up 24 percentage points compared with early January.

As the economy recovered, demand for jobs increased and vacancies rose to 97 per cent of their February 2020 levels in the week ending April 1, up from 64 per cent in early January.

Most sectors registered an increase in job vacancies, including hard-hit hospitality — where vacancies rose to almost half their February 2020 level, up from one quarter in early January. Ahead of the reopening of non-essential stores, job opportunities in the retail sector were also up sharply.

Howard Archer, chief economic adviser at the EY Item Club, said the “economy has clearly progressively come off its January lows and it seems to have taken particular steps forward during March”.

As a result, “the UK economy certainly seems to have held up markedly better than had originally looked likely in the first quarter”.