Exclusive research by Building shows the construction industry may be slowing down faster than we think after the Brexit vote
Last Sunday, hundreds of people clustered on the banks of the Thames as a model of 17th century London was set alight to mark the 350th year anniversary of the Great Fire. With a mild late summer evening and a surprisingly tuneful spontaneous rendition of London’s Burning, the occasion was far more convivial than it was commiserative. But the spectacle of the intricately designed replica city, literally on a burning platform, also offered an uncomfortable visual metaphor for those prone to fretting over the challenges ahead for London, and the rest of the UK, in maintaining and developing its built environment in these increasingly uncertain times.
In the two and a half months since the UK voted for Brexit, the construction industry has been awash with output and sentiment statistics attempting to gauge the impact of a vote that many, particularly those reliant on London’s commercial sector, feared would lead to swathes of schemes stalled or abandoned. The data has painted a mixed picture, with construction technically in recession based on first estimates by the ONS, but several listed contractors and housebuilders bullish over pipelines.
Given much of the output data is still reflecting conditions before the vote, most commentators believe it is still too early to judge the scale of any fallout. But with a host of high-profile industry bosses – Redrow’s Steve Morgan being the latest – lining up to reassure investors over healthy order books, and a correspondingly low number of high-profile schemes put on hold, there has been a sneaking sense of hope that, in the short term at least, the sector’s worst fears will not come to pass.
Almost half of all respondents say they have had projects put on hold or abandoned due to the Brexit vote
Exclusive research carried out by Building three weeks ago, and published today, lends some support to this view. Just over half of respondents (53%) said their businesses had not experienced a slowdown since the referendum; a similar proportion to that which, in our pre-vote research, had not experienced a slowdown in the run-up either.
However, although this suggests there has been no sharp shock to the sector, the proportion that have seen a slowdown, 35%, is a 10-percentage point increase on those who had done so prior to the vote. This indicates that, for some firms, cracks are starting to show. And this trend becomes much more worrying when you combine it with the fact that almost half of all respondents say they have had projects put on hold or abandoned due to the Brexit vote.
This figure has two critical implications. First, it suggests that, behind the reassuring lack of high-profile schemes being pulled, lies a far greater number of less prominent, probably smaller, projects being put on ice beneath the radar of the market-watchers. And this stands to have a more widespread impact than the handful of A-list schemes known to be affected so far.
Secondly, the fact that a markedly greater proportion of businesses have seen schemes put on hold than have experienced a slowdown indicates that, while clients are indeed taking action in the face of market uncertainty, for many businesses there is enough other work around to fill the gap. So the crucial question is: will this trend outlast the jitters among clients taking a cautious approach?
The industry, clearly, is concerned that it won’t. Seventy-two percent of those we surveyed thought the short-term impact of the vote would be negative – which when viewed against the 35% who have already seen a slowdown implies a strong feeling that the worst is yet to hit.
This pessimism is driven by a slight increase in negative feeling towards both housing and commercial sectors since our last research; although, interestingly, the sentiment around the publicly dominated areas of education and healthcare has slightly improved. This is perhaps in anticipation that Theresa May will be more open to public investment than her predecessor; with the industry also feeling slightly more optimistic about infrastructure than it was under David Cameron, despite the new prime minister’s unexpected review of Hinkley Point C. The view that the new PM may be able to steer the markets clear of Brexit’s potential pitfalls is also reflected in the fact that the proportion who believe the vote will have a negative impact over the long term drops to 42%.
So much rides on how swiftly and convincingly certainty returns – and, explicitly, whether it can happen before current pipelines dry up.
One final word of caution, though. The fears that Brexit would have a negative short-term effect were by far strongest among consultants – those at the front of the supply chain – with 56% saying they would definitely be making redundancies as a result of the vote.
The platform may be burning faster than you think.
Sarah Richardson, editor