Do the statistics point to real recovery?

Since construction output posted its record 41.2% fall in April, there has been an encouraging rate of recovery in each subsequent month as more sites have reopened and productivity edges up in the confines of the new, socially-distanced normal. Yet despite the strong growth recorded over summer, such GDP, services and manufacturing, construction activity remains lower than it was pre-coronavirus in February. 

As always with construction, the recovery has not applied itself uniformly across sectors. Infrastructure is the obvious outlier as the only sector to have risen above its pre-coronavirus level of output by August. Part of this is due to the fact that activity didn’t fall as much during lockdown as larger, outdoor sites make it easier to enact social distancing requirements, but it’s also a sector with a strong pipeline of projects and spending frameworks that shore up financial certainty.

> Construction recovery slows in August

There is one exception to the rule, however: airports. Large multi-year programmes have been put on hold across the country, with air transport one of the four worst-affected sectors of the services economy. In August, output was still less than a fifth of February levels.

Private housing, one sector of construction that fell the furthest recovered sharply in August to be just 3.5% below its pre-coronavirus level. As a sector that is highly reactive to economic conditions, initial expectations were for a slower climb back up.

Add in the prospect for at least some Brexit disruption in the new year and although this recovery is building up from solid foundations, there’s still plenty that could make it crack

 

However, this has not been a normal recession and typical drivers such as the labour market have been propped up so far by the furlough scheme. Noticeably, the unemployment and redundancy rates began ticking up as the scheme was narrowed from July. Add to this a scarcity of high loan-to-value lending, the end of the stamp duty holiday and the narrower eligibility for Help to Buy from April, and 2021 will be the real litmus test.

Commercial is an interesting sector right now. It has been on a steady V-shaped recovery with contractors keen to avoid delay-related cost increases for projects halted by lockdown. Looking ahead, though, the sector faces perhaps the biggest uncertainties in terms of patterns of demand - whether it’s committing to an up-front outlay for thousands of square feet of new office space when a large proportion of office-based firms are still working from home without an end date, or building a new shopping centre or high street retail space, where a decline in values and rents is forecast in each of the next three years.

Add in the prospect for at least some Brexit disruption in the new year and although this recovery is building up from solid foundations, there’s still plenty that could make it crack.

Rebecca Larkin is senior economist at the Construction Products Association