Workloads have slowed across all sectors of the construction industry as Brexit delays investment, according to the Q2 2017 UK RICS Construction and Infrastructure Market Survey. Anecdotal evidence from respondents suggests that uncertainty regarding Brexit is weighing on investment decisions, alongside the political turmoil generated from last month’s general election.

A modest slowing

After a positive picture in the Q1 survey with the growth in workloads accelerating at its strongest pace since the referendum, there has been a modest slowing in Q2 2017 with private commercial and industrial sectors seeing the most significant easing in activity.

That said, a net balance of 29% of contributors continue to report a rise in private housing activity.

Although growth in total workloads has slowed in the sector, it is still rising, with 21% more respondents reporting an increase (down from +27% recorded in the previous quarter). Expectations for the next 12 months also remain relatively positive, although respondents appear noticeably less optimistic on their profit margins.

Infrastructure in focus

Infrastructure workloads remain broadly unchanged, with roads, rail and energy expected to see the strongest growth in output over the coming 12 months. Two areas of the UK that are seeing activity continue to rise are the Midlands and East Anglia, where activity has been boosted thanks to a surge in infrastructure.

Respondents in all other parts of the UK report a fall in workloads.

Looking back at the national picture, in the two sectors with the most significant easing, 21% more respondents saw their workloads in the private commercial rise rather than fall in Q2, down from 31% in the prior quarter. Private industrial activity also eased to 15% from 22% previously.

The more uncertain outlook for the economy as a whole has led to a less optimistic outlook for the sector over the year ahead; even so, 44% more contributors expect activity to rise rather than fall. This is down from 53% the previous quarter. Likewise, only 29% more contributors now expect to see employment rise rather than a fall, compared with an average of 32% over the four previous quarters.

Financial constraints

Financial constraints are reported to be by far the most significant impediment to building activity, and with a net balance of 79% (from 70% in Q1) is the highest reading in four years. Economic uncertainty driven largely by Brexit and the subsequent election result was identified as the primary cause of the constraint. Difficulties with access to bank finance and credit, along with cash flow and liquidity challenges, were the second and third most frequently cited reasons, respectively.

Despite the slowdown in growth, skills shortages persist with 55% of contributors reporting them as a constraint on growth. After having eased in 2016, the intensification of labour shortages appears to be biting once more. The lack of quantity surveyors and bricklayers appears to be particularly acute, but the shortfall extends to other construction professionals as well.

Tender price expectations over the next twelve months remain unchanged in Q2, with respondents envisaging greater price pressures. The expected increase in tender prices may signal rising costs and shrinking profit margins for businesses. Indeed, expectations on profit margins have eased from a net balance of 18% to 8% in the latest results.

Jeffrey Matsu, RICS Senior Economist said “Economic and political uncertainty appear to be weighing on sentiment, but all things considered, current conditions and year-ahead workload expectations are holding up rather well relative to the longer-term trend.

“Given the ongoing nature of Brexit negotiations, it remains to be seen what impact this will have on financial conditions or the availability of skilled labour to the industry.”

New construction statistics for June, which show the weakest sector performance for seven years, are a cautionary sign of the damage that current uncertainty is causing to the building industry.

Brian Berry, Chief Executive of the Federation of Master Builders, said “June’s PMI figures, which show a huge dip in construction output, reflect our fears that uncertainty over the outcome of the EU referendum would hit our sector.

“In the wake of the UK’s vote to leave the EU, there is a growing concern that this period of uncertainty is only just beginning. Construction is an industry that is particularly vulnerable to dips in confidence and it appears that many clients were hesitant to commit to new projects as they were unsure of what the future held.

“An exit road map is needed to show what steps are going to be taken to withdraw from the EU.

“Today’s results underline the importance of clear leadership from the Government – it’s imperative that it attempts to offset any uncertainty firms will be feeling. Today’s announcement by the Chancellor that he would seek to lower corporation tax to below 15% is a positive step, as was Greg Clark’s recent reaffirmation that the Government will still aim to build one million new homes by 2020. However, much more needs to be done. Dithering over infrastructure decisions will send out entirely the wrong message to firms of all sizes.

“More than ever, investment is needed in a sector that generates £2.84 in the wider economy for every £1 spent. Public investment in our sector could play a vital part in warding off an economic slump, but today’s findings show that it will be far from business as usual.”

A survey carried out by the Federation of Master Builders (FMB) has revealed that 80% of construction bosses of SME’s will vote in the upcoming European Union referendum according to their own personal beliefs rather than casting a wider business interest-based vote overall.

The poll results indicate that more than 50% of small construction company owners feel like they haven’t received enough relevant information on the issues that might affect their businesses should we stay or leave come referendum time.

40% of respondents said that the main appeal to leave the EU would be the ability to “freely legislate” to meet the demands of British business. The argument to remain seemed largely based on the economic stability provided by the EU.

Only 17% of respondents said that they would put their business interests first when it came to deciding on the issue.

Brian Berry, Chief Executive of the FMB said “The outcome of June’s referendum on Britain’s membership of the EU will have significant ramifications for construction SMEs, regardless of the outcome. That’s why it’s fascinating that more than 80% of our members have indicated that their vote will be determined by their personal beliefs ahead of anything else. It just goes to show that although it’s important to explore the business case for leaving or remaining within the EU, for many people their decision will be based first and foremost on other drivers. These could include the desire to be part of the wider European community or a compulsion to reclaim British national sovereignty.

“However, a recent survey by Ipsos MORI revealed that the public want to hear the perspective of SMEs more than any other type of business. Unfortunately our research shows that the people who run small construction firms feel that the ongoing debate over Brexit has done little to enlighten them on the issues that really matter, with 52% stating they do not feel well informed on the issues that might affect their businesses. This is perhaps a reflection of how few of the impartial facts that are so widely craved have actually been offered by either side. No wonder then, that the vast majority of builders will be opting to vote based on their wider personal beliefs, when the economic and business case of each argument remain so unclear.

“What’s clear is that few sectors are more sensitive to uncertainty than construction. Already, there are signs that the unpredictability surrounding the outcome is beginning to sag on industry confidence as investment is deferred and home owner confidence wanes. This explains why continued economic stability has been cited as the best reason to remain in the EU. On the other hand, 40% of SMEs identified the potential freedom that Brexit could grant the Government to set legislation that truly meets the needs of British business as the biggest potential positive of Brexit.”

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