Slump in UK construction to continue under no-deal Brexit

“Although a hard Brexit would result in a clear-cut exit from the EU, there would be a new phase of uncertainty. Investors would potentially put on hold new developments or cancel projects outright until there was some clarity on the UK’s future position outside of the EU under a no-deal scenario,” said Danny Richards, Lead Economist at GlobalData. “The commercial sector would be the hardest hit, with reduced investment in new office, retail, and hospitality buildings – particularly for speculative developments. The underlying drivers for works in residential and infrastructure construction would remain in place, but there is a downside risk given the potential for project costs to spike in the short term and contractors failing to deliver projects within budget.”

GlobalData has revised its growth projections, reflecting the recent upheaval in the UK political scene. The company no longer bases its central forecast for the UK’s construction industry on the relatively benign scenario of a managed exit from the EU under a withdrawal agreement. This is in view of the weak position of the UK’s Prime Minister, Boris Johnson, the polarisation of Parliament, and the prospect of a snap election.

“The UK is set either to continue a prolonged period of uncertainty over how and when the UK will leave the EU, or it will reach a point when a no-deal Brexit is carefully engineered, despite recent legal moves to rule out such an outcome,” continued Richards.

Although the UK construction industry’s output was still up by 2.2% y/y in January-July, the pace of growth has been slowing sharply in recent months, and leading indicators suggest there will be a continued decline in the coming quarters. However, there is a clear divide in terms of the performance of key sectors. Overall infrastructure, for example, has expanded by 12.1% y/y in the first seven months of 2019, supported mainly by large-scale investments in public infrastructure projects through government flagship programmes such as the National Infrastructure Plan. Total residential construction was up by 5.7% during the same period, but much of this growth was driven by public housing (up by 22.5%), with private housing projects posting growth of just 2.7%.

“Reflecting investor uncertainty and concerns over the potential for a sharp economic downturn, new construction in the commercial and industrial sectors had plummeted on a y/y basis – down by 5.3% and 5.7% respectively, in January – July 2019. Growth in these sectors is expected to remain negative until a clearer understanding emerges on the conditions under which the UK will leave the EU and how this is likely to affect trade and investment. The longer the current state of uncertainty persists, the greater the risk of existing projects in the pipeline being put on hold or cancelled.”

Read the article online at: https://www.worldcement.com/europe-cis/07102019/slump-in-uk-construction-to-continue-under-no-deal-brexit/