No sign of a major upturn for the industry this October
The unresolved Brexit situation prolongs feelings of uncertainty in the sector
The headline of the latest IHS Markit/CIPS UK Construction Output survey figures is the somewhat alarming:
‘Activity declines at second sharpest rate since 2009’.
Although this is a monthly update, it comes at the end of the third quarter so it is always interesting to take stock at these key points in the year.
The index figure of 43.3 was markedly down on last month’s 45.0 figure (anything below 50 indicates contraction in the industry) and was below the 45.0 level that had also been anticipated by analysts.
Of the three individual sectors, commercial activity performed the worst, civil engineering had also dropped sharply and residential building registered a decrease in activity for the fourth month running.
Feedback from survey respondents cited Brexit and general economic uncertainty as the main reasons why major projects weren’t going ahead. This is the consistent message that has been coming from industry participants over the last few months.
More positivity for the future?
On a more positive note, although respondents reported that business confidence was generally weak there was mild optimism that the picture would improve over the next 12 months, presumably with the hope that the Brexit stalemate will be resolved (although how this will happen is not yet clear).
However, this month respondents also reported a drop in staffing levels – the strongest fall in numbers since 2010.
Update from the Construction Products Association
In another recent update the Construction Products Association (CPA) has downgraded its industry predictions for the next 12 months. The CPA acts as the voice and campaigner for construction product manufacturers and distributors across the industry.
In the summer the organisation had been predicting 2020 and 2021 growth across the industry of 1% and 1.4% respectively. This has now been adjusted down to 0.5% and 0.9%.
Three factors were cited; the possible impact of the government’s recently announced review of the major HS2 project (which may result in delay, downgrade or even cancellation), cost overruns at Hinkley Point C and uncertainty over the UK’s departure from the EU.
These aspects, and particularly the Brexit situation, have led to a lack of investment in new infrastructure, office space and house building.
Concerns in the housing market
In its most recent residential survey for September, the Royal Institute of Chartered Surveyors (RICS) has said that the ‘Brexit impasse’ is preventing people from selling their homes with the market remaining ‘subdued’.
The September figures showed that nationwide sales had reduced and new instructions were slipping. Listings coming on to the market had fallen for the first time in 4 months.
Construction industry watchers keep a close eye on the housing market because an increase or decrease in demand for housing has a direct affect on the likelihood that new houses will need to be built.
Anecdotal feedback was that a combination of both economic and political uncertainty are making people hesitate before selling or buying and the ‘Brexit effect’ is more marked in the South East than regionally.
On a more positive note there was a general feeling that the situation would improve over the coming year. Clearly this is another sector that is hoping for a resolution to Brexit as soon as possible
Construction in the Queen’s Speech?
As reported on Building.co.uk the Queen’s speech was delivered on 14th October. The speech outlines the government’s plans for the coming term of parliament and although the nation is currently in a state of political uncertainty, it still provides a useful outline of current intentions.
Industry watchers had been hoping for a mention of the HS2 project (see the CPA section above) as the current government review has made its future seem uncertain, but it wasn’t included in the speech (although it was addressed in the 2017 speech and it did at least make a very small appearance in this year’s briefing notes).
There was also no reference to any plans to address the nation’s housing shortage. It had been hoped that the government might be intending to continue to offer assistance to first time buyers to help the sector, which in turn would encourage house building projects to go ahead.
One area of interest that was covered was the government’s intention to introduce improved building safety standards and create a new building safety regulator. This plan has emerged as a direct response to the Grenfell tragedy.
The speech also echoed the chancellor’s earlier pledge to improve the nation’s infrastructure (see our September blog) in a National Infrastructure Strategy focused on digital, transport and energy infrastructure.
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