Uncertainty around the EU referendum is hampering commercial activity while private housing continues to grow

Michael Dall

The latest construction output release from the ONS told a familiar story of monthly declines set against longer-term growth. This indicates that the industry remains in fairly good health despite the increasing number of negative headlines on construction and the UK economy. The industry declined by 0.3% in February compared to January but grew by 0.3% compared to February last year. What interested me most in these figures is that the private housing sector remains the major constituent of growth within construction. In fact, in February it was the only sector that exhibited monthly growth and when compared to last year the level of output in new private housing increased by 10.6%. In the same period private commercial was the only other sector that grew and that was by a measly 0.4%.

Given the ongoing housing crisis, it is perhaps no surprise that housing remains buoyant and there is no doubt that the existence of government schemes such as Help to Buy are providing a solid platform for growth in the sector. That is likely to remain the case for the next few years as the government continues to place housing at the top of the political agenda.

What is concerning is the lack of growth in other sectors, in particular private commercial work. It seems that uncertainty around the upcoming EU referendum is hampering the amount of commercial activity. This makes sense as the sector is most exposed to the investment sentiment within the economy, and the outcome could fundamentally change the basis on which you made that decision. Might finance come from a country in the EU? That is obviously going to cause a decision to be delayed until more certainty exists. Might contractors be wary that trading terms could change with suppliers that they have priced into contracts? Or may the availability of labour supply change if workers employed from the EU are no longer able to work in the UK?  With issues of such importance it is obvious why the commercial sector is nervous. That said, it does suggest that a vote to remain may mean a glut of pent-up demand comes to the fore and the end of the year could be very busy indeed.

Michael Dall is an economist at Barbour ABI