Some businesses may be feeling the effects of a downturn already but it will take months for it to show up in official statistics
The world of economics is still reeling from the shock result of the referendum on EU membership. It seems that the only certainty is uncertainty at the moment across all aspects of the UK economy, and the construction industry is no exception.
Every set of data is being forensically examined to try and identify “Brexit effects.” From shop footfall to business sentiment surveys, any sign that the vote is having an adverse impact on the economy is being sought.
The reality is that it will take months for any downturn to filter through into official statistics. In 2008 businesses and consumers were behaving like it was a recession at least six months before official figures confirmed it.
From August I would expect the Barbour ABI data on contract awards to begin to show what impact the vote is having on investor appetite in construction
This doesn’t mean that statistics should be completely ignored, however, and from August I would expect the Barbour ABI data on contract awards to begin to show what impact the vote is having on investor appetite in construction.
The latest statistics from the Office for National Statistics, released in the last week, showed that output fell in May, a month before the vote. Output fell by 2.1% between April and May, and by 1.9% compared with May 2015. This indicates that construction was beginning to slow even before the result of the referendum.
What will be interesting over the coming months is the sector make up of growth in the industry. The latest figures show private housing, despite declining in May, is still growing over the long term, with growth of 7.1% in the past three months compared with the same period in 2015. At the same time infrastructure declined by 11%.
With housebuilders’ shares among the biggest losers since the referendum and Barratt Homes saying it may reduce build rates in response to the result, any drop in output in this sector does not bode well for construction’s growth prospects.
That said, the political rhetoric seems to be shifting in favour of infrastructure investment to combat any wider economic downturn. So will infrastructure replace housing as the engine of growth for the industry? Time will tell, but some sort of government intervention will be needed should housebuilding rates fall.
Michael Dall is an economist at Barbour ABI