Can ‘Boris bounce’ in construction PMIs withstand Brexit & the Coronavirus crunch?

Can ‘Boris bounce’ in construction PMIs withstand Brexit & the Coronavirus crunch?

The UK’s construction PMIs recovered from a slow start to 2020, with its best monthly performance since 2015.

The ‘Boris bounce’ describes an influx of demand for housebuilding and commercial building work since the breaking of the political deadlock last December, with the highest rate of new construction orders since 2015.

This brought about the headline PMI figure of 52.6 for february, up from 48.8 for the previous month. The research, carried out by IHS Markit and the Chartered Institute of Procurement & Supply, showed the first growth in new orders in nine months, with scores over 50 representing growth. It was also said that new infrastructure projects, such as HS2, have had a positive impact on housebuilding sentiment and could potentially increase demand in areas outside of London.

Speaking on February’s positive construction PMIs, Kate Kirby, Construction & Infrastructure Partner at global legal business, DWF, commented,

“Following a nine-month period of decline, UK construction companies indicated a return to business activity growth during February, the sharpest rise in new orders since December 2015 and the strongest growth since end of 2018. This is likely due to the anticipated post general election ‘bounce’ and is a welcome boost for the sector.”

The Coronavirus fear pandemic

According to most, the main downside weighing on sentiment the world over, will likely be Coronavirus.

It has already been documented that the world’s over-dependence on Chinese manufactured goods has been laid bare by the outbreak of the illness, and the disruption caused to supply chains looks likely to affect the flow of construction materials.

This could mean that the current, fragile turnaround in property sector sentiment could be undone sooner rather than later, as companies look to put plans on hold.

Echoing this solemn outlook, Kate Kirby continued,

“The question now is around the impact the coronavirus outbreak will have on the global supply chain of construction materials and workforce, which is likely to result in significant delays to projects. With investors speculating the global economy could grow at its slowest rate since 2019 due to the coronavirus outbreak, are we likely to see the same growth reported in the coming months? Probably not.”

Brexit bullishness in construction?

According the the IHS Markit survey, building firms said activity began to pick up following the completion of Brexit, which was seen as a source of uncertainty. The greatest rebound came from residential construction, which saw its best performance since July 2018.

To me this seems entirely counter-intuitive. Granted, the symbolic Brexit deadline has been passed and we’re one step closer to closing this political chapter, but surely the worst uncertainty is yet to come?

Analysis of a potential trade deal with the US has yielded little but a pessimistic outlook for British growth, and with other deals on economic alignments yet to be dreamt up – as well as discussions about the movements of people and goods – I can’t see how there won’t be a dip on the horizon.

At the very least, it seems intuitive to me that the time to buy isn’t now. Brexit hasn’t yet thrown its final blow to market sentiment, and I believe it doesn’t take much to say there will be more struggles for the UK in the not-too-distant future, and that’ll be the time to take advantage of shaky sentiment.

That being said, we can enjoy these construction PMIs while they last, and encourage buyers to fill their boots.