Unsupported browser

For a better experience please update your browser to its latest version.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

Brexit fallout: construction activity drops to seven-year low

Cranes 2by3
  • 2 Comments

Reduced client confidence brought about by Britain’s vote to leave the EU has seen construction activity drop to its lowest level since 2009

Data from the Markit/CIPS Construction Purchasing Managers Index, which measures activity in the construction sector, reported the fastest drop in output since June 2009.

According to the AJ’s sister title Construction News, the report found commercial building experienced its steepest fall in six-and-a half years, while civil engineering activity dropped for the first time in 2016.

It was released the same day as the Federation of Master Builders raised fears over the rising costs of materials for SMEs following the EU referendum.

The Markit / CIPS index registered 45.9 for July, down fractionally on the 46 recorded in June but well below the no-change mark of 50. Construction firms reported weaker order books for the third month running.

This was largely attributed to the EU referendum ’dampening client confidence’ as they adopted a ’wait-and-see approach’ in the lead-up to and following the Brexit vote.

Markit economist Tim Moore said the figures confirmed a clear ‘loss of momentum’ since the second quarter of 2016, led by a ’steep and accelerated’ decline in commercial building.

He said: ’UK construction firms frequently cited ongoing economic uncertainty as having a material negative impact on their order books.

‘In particular, survey respondents noted heightened risk aversion and lower investment spending among clients, notwithstanding a greater number of speculative enquiries in anticipation of lower charges.’

Construction activity drops to seven year low post-Brexit

Construction activity drops to seven year low post-Brexit

Source: Construction News

Construction activity drops to seven year low post-Brexit

Insufficient new work to replace completed projects resulted in a decline in employment numbers for the first time since 2013, while subcontractor availability rose at its fastest pace since September 2012.

A weaker sterling exchange rate contributed to material prices seeing their steepest rise since March 2015.

The falling pound led to concerns that SMEs incomes could be hit by inflated wages and rising material costs brought about by the leave vote.

SME fears

The FMB’s State of the Trade Survey for Q2 2016 found that nearly two-thirds of the 300 SMEs surveyed had anticipated rising material costs ahead of the EU referendum.

FMB chief executive Brian Berry said this would only get worse for SMEs, with the falling pound set to add to firms’ materials bills.

He said: ’Following the EU referendum, the plummeting value of sterling has further complicated an already difficult situation for small construction firms.

’The results show that firms were already pencilling in escalating costs for the coming months, but few will have anticipated a 9 per cent drop against the euro and 12 per cent against the US dollar.

‘The UK construction industry is heavily reliant on imported products and materials, so this situation is very concerning indeed.’

This combined with skills shortages was putting upward pressure on salaries and wages, making running a small construction firm increasingly expensive, the federation said.

It added that falling public sector workloads were increasing to the pain and called on the government to do everything in its power to ’reverse the situation and get Britain building again’.

Reaction

Richard Threlfall, head of infrastructure, building and construction, KPMG UK:

’In the longer term, a lot will depend on the path the UK carves out for itself: whether it chooses to sail the seas alone or manages to join a flotilla of like-minded others to make its prospects stronger.

’However, the economic impact will be significant under most outcomes, with UK GDP potentially 4-6 per cent lower by 2031 than if the UK had voted to remain in the EU. This will inevitably impact on construction demand.

’Businesses need to start planning now for a range of possible scenarios including new tariffs and other trade restrictions, pressures on wages and labour availability, and a deterioration in public finances.”

Mark Robinson, chief executive, Scape Group:

’Hope of further stabilisation has come with the newly appointed government, with the new prime minister and chancellor strongly indicating that they will continue to invest in major infrastructure projects to support the economy.

’It is certainly more important now than ever that projects such as High Speed 2 and the Northern Powerhouse remain a top priority to support construction and a strong united economy for the long term.

’I count myself among those who believe that construction will bounce back from these more testing times, both in terms of activity and efficiency, and will continue on an upward trajectory once economic and social conditions have stabilised.”

Julie Palmer, partner, Begbies Traynor:

’UK construction has been one of the hardest hit sectors following the Brexit result. The rise in uncertainty will have led to a steep slowdown in investment activity and so, in the short term at least, UK construction will feel some pain.

UK construction has been one of the hardest hit sectors following the Brexit result

’Indeed, our recent red flag data revealed that 22,651 construction companies were suffering from ‘significant’ financial distress, suggesting that the foundations for the sector were already under pressure before the vote. It is likely that the UK construction industry will see further uncertainty over the coming months as investors delay decisions while the details of a Brexit are scoped out.’

 

  • 2 Comments

Readers' comments (2)

  • Shame that we are experiencing such a drop in construction, glad to say we haven't seen any difference since Brexit at Service Lift Co. In fact I would say our lift sales have increased slightly, perhaps due to the time of year.

    Service Lift Co - www.serviceliftco.co.uk

    Unsuitable or offensive? Report this comment

  • MacKenzie Architects

    You can't blame everything on Brexit, or the fear thereof.
    Most of this data will have come from before the vote -when the Remanians were confident of victory.

    The fear in construction of new developments is the next banking crash and the collapse of the Euro. Britain in or out of Europe is of marginal effect until these events happen (as long as we stay out of the Euro)

    The exchange rate with the Euro, which we enjoyed at between 1:30 and 1:40 for about 18 months when the European Banks were the issue, has gone back to around the previously average 1:20 mark.
    So we got the benefit of cheaper European imports for a while.
    That time will come back very quickly as the European Central Banks runs out of ways to hide the massive support they are giving to insolvent European Banks

    Unsuitable or offensive? Report this comment

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions.

Links may be included in your comments but HTML is not permitted.

Related Jobs

AJ Jobs