The UK Construction Industry – Life Beyond Brexit

The UK Construction Industry – Life Beyond Brexit

24th November 2016

Last week again brought some worrying news for the construction industry here in the UK with headlines screaming at us that UK construction is at its weakest level for four years due to stall in housebuilding activity.    With construction accounting for 6% of the UK economy, this is bad news for the nation as a whole.  Official figures clearly show that output in the construction sector decreased by 1.1% from the previous quarter in the quarter from July to September which is a blow to the new government which has been hoping to increase the housing supply.   

According to the BBC, there were significant reductions in repair work with the value of all repair and maintenance 3.6% lower than in the previous quarter.  These are the first official figures that have been released since June’s Brexit vote and it looks as if business and industry leaders who warned against leaving the EU were right, although the drop in building activity was not as severe as predicted by some. 

If any further evidence is needed of a slowdown in construction activity, then one of the UK’s largest materials and insulation companies, SIG, issued a profit warning last week as the Chief Executive of the company stepped down.  According to SIG, the slowdown of building activity around the time of the Referendum has led to trading conditions in the UK softening, with some commercial projects delayed.

It’s not all doom and gloom though as office construction in central London recently hit an eight year high as the business districts began to overcome the Brexit jitters.  There are more than 120 projects in London currently and the amount of office space actually being built is up more than 4% compared with just six months ago.   There have been delays to completion on many projects though, with dates slipping by an average of three months.

While London itself is demonstrating resilience in the wake of the Brexit vote, the recent High Court decision that the government is unable to trigger Article 50 of the Lisbon Treaty without authorisation from an Act of Parliament is causing even more uncertainty and doubt with investors. 

The UK’s future relationship with the European Union (EU) is very uncertain right now and the government’s delay in setting out its intentions may result in a further reduction or delay in inward investment.  However, it’s believed that some foreign investors will continue to finance projects in the UK because the falling pound has led to a fall in the cost of building. 

 One of the major challenges that the UK construction industry is facing right now is the UK’s membership of the European Union Customers Union, which is a single trading area where goods circulate freely, whether they are produced within the EU or imported from outside.  Goods produced within the EU are currently not subject to duties or checks when they arrive in the UK.  If the UK were to leave the Customs Union, we may be facing a sharp increase in construction costs.