The year, like stick rock, will have Brexit running through it – but despite all the time and money spent on securing a trade deal less good than the one we have now, there will be plenty of opportunities for construction to prove itself robust
2018 has dawned, so what next for UK construction and our Brexit mystery tour? The old Danish proverb has it that “predictions are hazardous, especially about the future”, but it hasn’t stopped people trying.
Nostradamus, the 16th-century French prophet predicted that in 2018 the dead would rise from the grave (Tony Blair?), the false trumpet (Trump?) would provoke big disagreements, that France would be invaded by Arabs and Muslims provoking a world war and lots of natural disasters. So far so good!
Back in the real world, it looks like we will get a Brexit deal whereby we stay in the customs union for another two years and pay around £40bn net into different project purses ranging over different time periods. Given our net contributions over the past few years of around £7bn per year, this is about six years’ money. In two of those years we will still be getting the trading benefits of the EU, but for four of them we will not. It’s going to be like extending the post-crash austerity measures of George Osborne. Hardly a good deal and hardly what our brave Brexiteers promised.
If the Victorians could have borrowed at today’s rates they would have changed the world with massive infrastructure projects and reaped the rewards
Theresa May’s successful conclusion to the stage one negotiation in December ended a shambolic period of discussions and gives rise to some hope for the next phase. In addition, there are some mitigating circumstances for our economy in 2018. Firstly, interest rates are still very low, although rising inflation will push them up. Low interest rates make investing in infrastructure prudent and affordable. If the Victorians could have borrowed at this rate they would have changed the world with massive infrastructure projects and reaped the subsequent rewards. Secondly, the low pound does make our exports competitive and arguably this will compensate for most of the trade tariffs we will have to bear. Unfortunately, I can’t see this helping UK-based banks, which rely on the “passport” to trade financial services into the EU. This seems much more binary – you either can trade, or you can’t.
This will rest on a negotiation that I can’t see us winning as Frankfurt, Paris and Dublin all want our bankers. Lastly, the two-year transition period where we will have to play by the EU rules but will get access to all their markets will be a huge help. This will give business time to take stock of the situation and will avoid a relocation stampede running up to 29 March 2019.
What does this mean for 2018? Infrastructure spending will remain reasonably strong at about £100bn a year, which is good news for construction. The office market is likely to be flat, with developers adopting a cautious approach and probably only going ahead with schemes that are pre-let to tenants. My own office has a surprisingly strong pipeline of work and invitations to tender for tenants wanting to fit out offices going into the new year, which would indicate that companies are pressing on regardless. I think that is going to be a general trend. UK business is resilient and robust; it might get knocked back, but it won’t be stopped. Retail is bound to be a challenging market as online shopping decimates the high street and malls.
There has been a massive failure in the attempt to get the private sector to build what the public sector used to build – affordable homes
Housing is the continuing conundrum. There is one solution to all the ails of the housing market – availability, price, mobility, social change, immigration – it is to build more homes. In 1970 we built 357,000 dwellings, 171,000 of them by the private sector. In 2016/17 we built 184,000 dwellings, 160,000 of them by the private sector – about the same. There has been a massive failure in the attempt to get the private sector to build what the public sector used to build – affordable homes. The traditional private sector housing groups just do not want to do the public sector’s job for them. The public sector has all the land anyway, so in 2018 we need to see local authorities stepping up to the challenge, selecting delivery partners and building housing. Hopefully of rather better quality than they did in the 1970s.
And finally in my 2018 round-up, there are the health services. The demand for health services is a tide that, like King Canute’s, cannot be turned back. We are all getting older and want to live longer. We need a new funding mechanism in 2018. The flawed, but popular PFI funding used to deliver 60 projects a year, including massive new hospitals. Now its latest version only delivers a handful. A new PFI protocol is urgently needed, along with a Treasury underwriting for health trusts to use it.
Where does that leave us for 2018? Commercially robust but challenged. A good infrastructure pipeline that could be even better and needing urgent solutions for housing and health projects. There is a lot of work to do at both policy level and on the ground. Happy new year.