The reality is that, for now, nothing has changed in the UK economy
Waiting for the Brexit effect is like waiting for the rapture. Some think it has already happened, some believe it is on its way and others think it is a fictitious phenomenon not substantiated by evidence. Whatever your viewpoint, at the moment, the results are inconclusive. A record fall in the Purchasing Managers’ Index in July was followed by an unprecedented increase in August. You could view this as either proof of the resilience of the British economy or evidence of the turbulence that lies ahead.
The reality is that, for now, nothing has changed in the UK economy. Despite the initial shock of the vote to leave the EU, it appears that companies and consumers are adopting a “business as usual” approach. The construction industry appears to be similar, based on the first official statistics released since the referendum.
Between June and July, output growth in the construction industry was flat, which indicates the PMI figures, which showed dramatic drops in activity, were overdone. Activity was 1.5% lower than in July 2015 which, while not evidence of a booming industry, does not suggest one that is in the midst of a severe downturn.
Housing is holding up well, which is important for the construction industry as a whole. While output overall fell by 0.6% between June and July, housing output was 8.3% higher than in July 2015, which is a sign of the sector’s continuing strength. Trading conditions for housebuilders remain buoyant, with Barratt reporting that reservations for new homes were 6% higher than last year and Redrow reporting a 23% increase in profits. Given that this sector has been the main engine of growth for the industry as a whole means the construction industry remains well placed at the moment.
However, there is no doubting the headwinds that face the UK economy and the construction industry. The Brexit debate is essentially a phoney war at the moment while the UK attempts to negotiate its position outside the EU. When and if that begins to crystallise, the mood music may change very quickly. For now, though, the industry is in a fairly healthy place, all things considered.
Michael Dall is an economist at Barbour ABI