Construction workloads continue to grow slowly, post-referendum

The pace of increase in workloads in the construction market continues to slow, according to the latest RICS UK Construction Market Survey, extending a trend that goes back to the middle of last year.

This flatter picture is visible across all sectors; 17% more respondents reported a rise in activity over the previous three months compared with 28% in the first quarter, with the most pronounced slowdowns being seen in the private commercial, industrial and housing segments. That said, 27% more contributors still reported a rise in private housing activity – down from 36% in Q1 – while 17% more respondents saw their workloads in the private commercial sector rise rather than fall in Q2.

Significantly, for the second successive quarter, the biggest constraint on output according to respondents is finance with more than two-third of contributors highlighting this as the principal challenge. In breaking down the term financial constraints, 36% of respondents reported that a lack of funding was restricting new developments. Meanwhile, planning and regulatory delays also remain a key issue with 60% of respondents citing that these are constraining growth.

Despite the slowdown in activity in Q2, skills shortages remain a problem with 56% of contributors reporting that a lack of appropriately skilled labour was a constraint on growth. Bricklayers and quantity surveyors remain in particularly short supply with 59% and 57% of respondents citing difficulties in these areas.

The more uncertain prospects for the economy have led to a less optimistic outlook for the sector over the year ahead. Although, putting this in perspective, 23% more contributors still expect activity to rise rather than fall over this period. On average, contributors foresee their workloads increasing by 1% over the coming 12 months, down from the 2.8% growth predicted in Q1.
Expectations for employment growth have also moderated significantly with a rise of 0.6% anticipated, down from 2% the previous quarter.

Aside from in Scotland where activity flatlined relative to Q1, respondents in all other parts of the UK continue to report a rise in workloads.

Simon Rubinsohn, RICS Chief Economist, commented “The latest results from the RICS Construction Market Survey suggest that the second quarter of the year saw a further moderation in the growth trend which is not altogether surprising given the build-up to the EU referendum. Significantly, the biggest issue at the present time alongside uncertainty looks to be credit constraints with over two thirds of contributors highlighting this issue as a concern.

“Encouragingly, the swift actions of the Bank of England in creating additional capacity for the banking sector to provide funding to meet demand should help alleviate some of this pressure. Nevertheless, anecdotal evidence does indicate that the challenge for the British government in establishing a new relationship with the EU could see some investment plans in the construction sector scaled back.”