Theresa May’s Brexit announcement provides clarity but raises concerns
Now that Theresa May has set a deadline for triggering the Brexit process, the debate over the impact of the EU referendum, which had started to edge just slightly away from centre stage, has landed back there with full force. Even more pressingly, so has speculation about the near-term impact that Sunday’s announcement itself will have on the economy and on construction’s markets and businesses.
Having recovered from the knee-jerk market falls that came in the days after the vote on 23 June, the industry has largely experienced Brexit as a phoney war. Share prices of listed builders tumbled, then rose again. Projects were swiftly put on hold; many (although not all) were then swiftly brought back on stream. A handful of companies announced redundancies; competitors questioned whether Brexit was a reason or an excuse. Output dropped – but it had been dropping before the vote as well. Then, as the latest research from CIPS showed this week, activity rose in September. It was almost as if nothing had actually changed. Which, of course, it hadn’t. The UK is still, politically, economically and practically, part of the same union with the same other 27 states.
May’s setting a deadline for triggering Article 50, which will in turn set the clock ticking for leaving the EU, will still not, for now, change the terms of the UK’s relationship with the union. Investors like certainty; and so the clarity May’s announcement provides over a timeframe could actually prove settling in the short term to investors and clients, leading to a few more of those paused schemes coming back onto the block.
But this positive is likely to be outweighed by alarm over the unexpectedly hardline tone of May’s position when it comes to the terms of a Brexit deal. Her suggestion that trying to negotiate a continuation of Britain’s position in the single market will be of secondary importance to having greater controls over immigration has already attracted surprise and concern even from within her own party. For investors, and those who rely on trade within Europe, this will increase nervousness around the terms of a deal – and the government’s understandable insistence that its negotiations will not be played out in public will, nevertheless, likely fuel that fear over the coming months.
The other concerning feature, from an industry perspective, of the timeframe May has outlined is how it lines up against the industry’s growth prospects. The latest forecasts predict slight output falls in 2016 and 2017, with a recovery in 2018. But with a Brexit now expected to take effect by mid-2019, this raises very real questions about the position the industry will be in to withstand the market turbulence that threatens to accompany it, if the sector performs as expected in the interim.
So for construction businesses, having a market that is stronger than currently predicted for the intervening two and a half years could well prove critical. And whether this happens will be heavily dependent on the attitude the government takes towards schemes that are in the national interest – most notably, housing and infrastructure.
On this front, amid all the Brexit headlines, there was some welcome news from the Tory conference this week. The announcement that the government will borrow £2bn to fund an “accelerated construction” programme of housebuilding, using public land and partnering with a diverse pool of developers, including offsite specialists and SMEs, to reduce development costs, was the headline from a package of measures designed to help deliver more homes.
The funding will be welcomed by firms that have struggled to compete with established volume players for sites; but even more significantly, the move signals a shift away from the rigid austerity that was a mantra of the Cameron and Osborne years.
Theresa May hinted in her leadership candidacy speech that such a move towards greater (but carefully targeted, of course) public financial support for key projects would be a feature of her premiership. And in an apparently unusual reversal of Wesminster posturing, that nuanced rhetoric has been followed by swift, clear action.
At a time when, politically, most bets are off, the industry can be cautiously hopeful for more of the same.
Sarah Richardson, editor