Construction activity in the UK showing signs of life following a turbulent period

8 June 2020 (Last Updated June 15th, 2020 12:39)

The UK construction industry has been severely affected by the virus outbreak, with several firms in the sector closing their sites in March in response to the worsening health situation.

Construction activity in the UK showing signs of life following a turbulent period

The UK has been among the most affected countries in the world and the worst-hit country in Europe terms of deaths and confirmed cases because of the Covid-19 epidemic. However, the number of daily new cases and deaths has been steadily declining in the past month.

On 28 May, the country registered 1,887 new cases and 377 deaths, a significant fall from the peak of 8,681 new cases and 1,152 deaths recorded on the 10 April. The fall in the number of cases has prompted the government to ease the lockdown measures imposed at the end of March with a three-stage plan. From the 1 June primary schools and non-essential shops will be reopened, while by mid-June sporting and cultural events will be able to resume. The government aims to reopen most businesses including pubs and restaurants from the start of July.

The UK construction industry has been severely affected by the virus outbreak, with several firms in the sector closing their sites in March in response to the worsening health situation. This was reflected in the March construction data, with output in the sector falling by 5.9% in the month of March compared to the previous year. Construction output in the first quarter fell by 3% on a year on year basis. Meanwhile, GlobalData’s Construction Project Momentum Index, which provides an assessment of the health of the construction project pipeline, plummeted to -0.73 in April, a sharp fall from the 0.42 recorded in March.

However, with the improving health environment, several firms announced at the start of May that construction sites would reopen gradually. With construction works restarting, there have also been signs that major projects are advancing. On 15 April, the government announced a formal approval for contractors to begin works on High-Speed 2 (HS2) railway project. Skanksa reported that it had signed a contract with HS2 Ltd to commence full detailed design and construction of Phase 1.

On 20 May, a joint venture of contractors consisting Balfour Beatty, Vinci and Systra announced that they received approval to start work on HS2’s West London station, Old Oak Common. The station is set to become the largest railway station in the UK and is expected to accommodate up to 250,000 passengers a day once completed. Work on the £1.3bn ($1.61bn) station is set to start next month with the estimated completion date set to be in 2026. While on May 13th, contractor Bouygues UK announced it had won a £113m ($138.5m) contract for the first phase of a mixed-use redevelopment by Westminster City Council.

As the economic outlook worsens and unemployment rises, the UK economy is set to contract by 8.7% in 2020 according to market consensus, a sharp downgrade from the 1.3% growth predicted in February. The worsening economic conditions and the virus outbreak are also set to negatively impact output in the UK construction sector.

GlobalData has downgraded its growth forecast for the UK construction industry to -5.8% in 2020, with a high likelihood of furthers cuts if activity in the short term is more severely disrupted than currently anticipated. However, with construction sites reopening and new projects starting in the next few months, a potential rebound in growth is likely in the latter half of the year, particularly if the virus outbreak is contained. However, downside risks remain if the sector is forced to lockdown in the event of a second outbreak later this year.