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What's next for Brexit and the construction industry?

What benefits or implications could happen for the construction industry following the Brexit vote? Hager's Darren Palmer takes a closer look.
It is three months since the UK voted to leave the EU and the immediate reactions to the result have had chance to cool off so that level headed opinion and debate can now be formed and heard going forward.

A recent survey involving members of the ECA, BESA and SELECT1 provides a robust and largely positive view of the industry, its challenges post-Brexit and into the future. For example, 46% of respondents believe Brexit will have a positive impact over the medium term. Maintaining access to the EU is the feature most respondents would like, which is also in line with the majority of other UK industries’ responses so far.

Interestingly, 92% said they do not rely on EU migrant workers. In contrast to this, leaders of RICS, RIBA, CIOB & RTPI2 have written to Brexit Minister David Davis to lobby against potentially not having access to the skilled workforce that the current EU agreement provides.

The nitty gritty outcomes of the various lobby groups interests, political decisions, negotiated deals and what does or does not remain as the regulatory framework is something that will only be known with any certainty in years to come. Perhaps the most important for those in industry is the quality, reliability and timeliness of any information that is communicated which will, in some part, enable a clearer view for those tasked with charting and planning future activity.

For the immediate future, the most pressing issues concern near term uncertainties. Indeed, there have already been some prominent construction industry voices who are expecting a tightening in market conditions. For example, the consultant Arcadis is predicting construction prices to fall by as much as 6% by 2018. Any reduction in workloads due to economic uncertainty is obviously going to lead to the undesirable outcome of over-capacity and more intense competition.

For instance, a recent Mace forecast have signalled that tender pricing is expected to fall in 2017 meaning that contractors could well experience a hyper-competitive environment where jobs and projects are undertaken for increasingly tighter margins. This, in turn, will only benefit those commissioning the work by enjoying reduced price or even bargain priced project costs.

To help offset a reduction in any future work in the pipeline, the government can stimulate activity by taking a robust stance and prioritising fiscal policy so areas such as infrastructure can provide a much needed boost for projects.

The depreciation of sterling against other currencies is another factor which could well influence future volumes and pricing of works. For instance, the costs of imported products and materials has risen due to the weaker value of sterling, so it’s a question of how much of that extra cost can or will be passed on to the customer or how much can or will be absorbed by manufacturers/suppliers?

Direct foreign investment into the UK is a key driver of projects, future growth and opportunity. With the depreciation of the sterling, investment into the UK is cheaper for those from overseas; however, they may only pull the trigger on any significant investment if the trade conditions are looking agreeable and the longer term business outlook for the UK is positive.

In summary, at this current juncture it is only possible to speculate as to what the positive or negative impacts of the Brexit vote will be for both the near and long term future. Access to skilled workers, volume of work, business & overseas investment and inflationary cost pressure on goods or materials are just some of the issues that will shape the eventual outcome in construction and its associated industries.

A more insightful overview and forecast will only be realistic once enough hard post-Brexit data has filtered into the Industry Associations and Government Departments that can then be considered for trends and reactions.
Author: Darren Palmer
Posted: 27th September 2016
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