RedRock Construction Industry Outlook – March 2019

March sees the first contraction in construction output since the poor weather in early 2018 

General uncertainty over the status of Brexit casts a pall over construction activity

There is no getting away from it, and as much as many of us would like to avoid any further debate on the subject, something we have to address in this month’s outlook is Brexit.

Looking back over previous editions of our monthly outlooks, this major forthcoming (we think!) change to our international relations has cropped up on a number of occasions. This month really sees it front and centre.

The dangers of uncertainty

Many industries and individual businesses are wrestling with the major  uncertainty that the ongoing political deliberations are causing. When we wrote about Brexit in our round-up of the year at the end of 2018, little did we think that in the latter half of March, we would still be wondering what will happen next.

Whether Soft Brexit, Hard Brexit, No Deal Brexit or Delayed Brexit – the lack of a single clear direction is inevitably causing a crisis of confidence in lots of different areas of business.

The construction industry is particularly vulnerable

The construction industry has always had the potential to be particularly affected by Brexit. Important relevant factors include huge projects which either move ahead or are delayed as a result of general business confidence, cross-Europe construction co-operation, the confidence of consumers (and therefore house buyers), the value of the pound and the movement of workers across Europe.

Is it any wonder that projects have been delayed whilst everyone waits to find out what the next steps will be?

Contraction in the industry

Turning to the important construction industry output figures for this month published in the IHS Markit/CIPS UK Construction Output survey, the latest index has shown a contraction in the UK construction industry for the first time following a period of 10 straight months of expansion.

The most recent output figure was at 49.5, and as we have indicated in past blogs – anything above 50, even a very small amount, indicates an expansion – below means that the industry is contracting. According to the survey the only construction category to see any growth was housing and this was described as modest. There were drops in both commercial building and civil engineering.

Feedback from industry respondents

Anecdotal feedback from respondents highlighted Brexit as the major factor affecting confidence in the industry. The view was that general political uncertainty is leading to a drop in invitations to tender.

Employment

Employment figures were not as robust as those seen at the end of 2018 but the good news is that employment creation has held steady and didn’t see any actual drop. Some companies reported that they are continuing to train staff in order to offset perceived skills shortages but at the same time the general outlook had caused some firms not to replace leavers.

The housing market

Despite the modestly positive figures for house building, there was some additional less than encouraging news in the latest RICS (The Royal Institute of Chartered Surveyors) Residential Market Survey for February 2019.

The overall results showed a decline in activity throughout the UK housing market for new buyer enquiries, instructions and agreed sales. 77% of respondents indicated that Brexit uncertainty was holding back sales activity.

The reality is that if people are not buying houses then this will apply an inevitable brake on them being built. Residential house building has traditionally been the sector that has held-up the best for the industry, when negative sentiment has affected other sorts of construction activity.

Our view

Construction activity remains busy and we are constantly on the lookout for skilled workers for our clients. At the same time we are looking forward to the resolution of the current Brexit stalemate – which we hope comes soon – and a welcome return to optimism for the UK Construction Industry.

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