What Is The Outlook For The UK Construction Industry Next Year?

It’s been a year of ups and downs in Britain with a heavy sprinkle of political upheaval, and forecasting the future of the UK construction industry with any certainty will always be a dangerous game.

Having said that, there is some interesting data emerging at the close of 2016, which should give those involved in the construction industry some hope for the outlook in 2017.

 

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The Good News/Bad News Bundle

Bad news has been tempered with good when it comes to construction fortunes in the last few months, and some economists who predicted a hard fall post- Brexit vote are now softening their predictions somewhat.

  • The Bad News: According to the Office of National Statistics, Britain’s construction industry had its weakest performance in four years in the first three months after the Brexit vote.
  • The Good News: This third quarter fall was not as bad as predicted, at 1.1% rather than the 1.4% previously estimated, and the construction industry then hit an unexpected 8-month high in November- an increase largely credited with resumption of stalled projects. For the year so far overall, construction growth has ended up being broadly flat rather than tumbling in the post Brexit period as many pundits were expecting.
  • The Bad News: Uncertainty over the implications of Brexit added delays to many construction projects, and the drop in the pound has steeply driven up the cost of imported building materials.
  • The Good News: The Bank of England has announced that it is expecting a much softer hit to construction than previously thought, not only in 2016 but throughout 2017. The economy as a whole is predicted to have grown by 2% by the end of 2016, and while PWC forecasts that growth will drop to 1.2% next year, they do not predict that the UK will enter a recession in 2017.

 

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  • The Bad News: While the impact of Brexit has been less than expected in the short term, some industry experts put this down to the fact that a) the UK economy had a lot of momentum at the time, and b) that Britain has not actually left the EU yet. Many forecasters therefore assume that the majority of the negative effects of leaving the EU are yet to be felt and will make their presence known in 2017 and beyond, albeit possibly to a lesser extent than was feared.
  • The Good News: In the November budget statement, the government announced a £23bn investment fund for infrastructure, focussed heavily on roads, rail and broadband capabilities. They also announced 2.3bn for a housing infrastructure fund, allocated 1.7bn for accelerating construction on public land, and a further 1.4bn for new affordable housing. These steps would act as a well-timed boon for the construction sector- which makes up around 6% of the total UK economy.
  • The Bad News: PWC predicts that the construction sector will suffer from lower levels of investment in 2017 due to post-Brexit uncertainty.
  • The Bad News (with a bit of good news) The construction industry relies very heavily on foreign workers from the EU, and a report from Arcadis Consultancy warns that changes to immigration law post-Brexit could result in the current skills gap in construction ‘becoming a skills gulf’. To ameliorate this concern, government minister Sajid Javid has announced that ‘the building sector will get whatever it needs’ when it comes to granting work visas to foreign builders where gaps occur.
  • The Good news: Despite the 1.1% drop in the third quarter for construction, the closely watched Markit/CIPS UK Construction purchasing managers’ index (PMI) rose to 52.8 last month, up from 52.6 in October.

 

What does it all mean?

Brexit has undoubtedly introduced a whole new level of uncertainty to the matrix, but the construction industry is always vulnerable to economic and political pressures that cannot be adequately predicted. In short, we’re facing an uncertain future- but when aren’t we? And there’s a good deal of better-than-expected data emerging at this stage, and due to the uncertainty, companies are being proactive in chasing opportunities.

 

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Summary

As always, there’s room for hope, and room for caution in the 2017 construction outlook, and businesses that succeed in the climate will no doubt chart a careful path between the two in the coming year. It may be true that no experts are predicting a construction boom in 2017, but few experts predicted the result of the Brexit referendum either. We’ll leave you to draw your own conclusions over that.

Best regards

Spencer