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Glenigan predicts industry recession after Brexit

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Analyst Glenigan has revised its mid-year forecast and predicted that the construction industry will go into recession as a result of last month’s Brexit vote

The report warns that UK economic growth is likely to slow in the second half of 2016 due to the ‘current political and economic uncertainty’ caused by the outcome of the European Union (EU) referendum.

The document points to a drop in project starts throughout 2016 which has reduced the current amount of work across the country.

It said: ‘The most immediate challenge is that, whilst the UK has voted out of the EU, it may be several years before it becomes clear what the UK has voted into.’

‘Against this uncertain background, UK economic growth is likely to slow during the second half of 2016, with capital expenditure particularly weak.’

Last month, Glenigan reported that the number of project starts in May nearly halved from the same period in 2015. 

The latest report predicts a ‘sharp decline’ in the value of project starts in social housing for the remainder of the year and into 2017. Glenigan forecasts that this value of social residential projects will fall by 7 per cent in 2016, followed by a huge 21 per cent drop in 2017.

But, in the private housing sector, the value of project starts is expected to increase by five per cent this year and then by two per cent in 2017. 

David Thomas, chief executive of Barratt Developments whose share priced dropped by nearly 40 per cent following the Brexit vote, said the housebuilder remained confident of future growth and that the business would ’respond to the changing landscape’.

long-term. He told the AJ: ’We have prepared for this eventuality and while we recognise there will be a period of uncertainty as the UK’s exit is negotiated, the strong fundamentals of our business are unchanged.

’There is a structural undersupply of quality homes in the UK, and we have a clear strategy to address this, supported by a strong balance sheet to execute our growth plans.’

In addition, Glenigan anticipates the retail sector will continue to be badly affected, highlighting the closure of BHS and Austin Reed. Retail project starts fell by 11 per cent last year and are expected to drop a further 12 per cent in 2016.

In total it predicts the value of underlying project starts to decrease 10 per cent this year and 2 per cent in 2017.

However, the report also forecasts that the hotel and leisure sector will benefit from the depreciation of sterling. Projects starts are expected to increase in 2017 and it is also expected to do well from high-profile schemes like Populous’ £400m redevelopment of Tottenham Hotspur’s White Hart Lane stadium.

The report also notes that the Brexit result will delay some major schemes. This includes the new south east runway, now paused until the announcement of the new prime minister, as well as the reportedly delayed and over budget HS2.

Value of underlying new work project starts by sector
 Change on previous year 2014 2015 2016 (f) 2017 (f)
 Private housing  13%  12%  5%  2%
 Social housing  -1%  -6%  -7%  -21%
 Industrial  49%  4%  -10%   -2%
 Offices  20%  9%  -5%  -5%
 Retail  8%  -11% -12%   5%
 Hotel & leisure  20%  2%  -18%  7%
 Education  10%  5%  -4%  6%
 Health  8%  -27%  6%  13%
 Community & amenity  -6%  -17%  17%  5%
 Civil engineering   2%  -12%  4%  12%
Total 10%  0% -2% 1%
 

(f) = forecast Source: Glenigan  

       

 

 

 

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