Figures which show the impact the EU referendum has had on the industry are starting to be released, but the picture still isn’t clear
In July, the first full month since the result of the referendum, there has been much debate and discussion on the “Brexit effect” on the UK economy and in the construction industry. More attention than usual is being paid to construction statistics with analysts and commentators keen to get an understanding of the impact of the referendum vote on economic activity.
Certainly, the Purchasing Manager’s Index (PMI), which is a survey of those responsible for investment, has shown a dramatic drop in activity. In July the all sector PMI had the fastest fall in its history and the construction reading is now 45.9, down from the mid-50s at the start of the year. However, this index is indicative of the levels of confidence within companies and does not necessarily precipitate a subsequent rise or fall in output levels.
However, falls of this level are clearly of concern and the official statistics that are available so far only cover to the end of June. It is therefore not possible to conclude anything about the referendum from these figures (despite many column inches to the contrary). What seems to be the case is that in construction, pre-referendum activity held up fairly well and, in truth, better than I expected. It is likely that many firms in the construction industry believed the opinion polls and were assuming that there would be no change in circumstances. However, there is no doubt that activity in construction is slowing; not the dramatic fall expected, but slowing none the less.
In Q2 the industry declined by 0.7% compared with Q1 and by 1.4% compared with Q2 2015. Private housing, which has been the main growth driver in the industry over recent years is still holding up fairly steady with output now 0.2% lower than in Q1 but 6.6% higher than last year. The question now is whether this is likely to change after the result of the referendum. The PMI indicators would suggest this is likely, hence the more negative consensus among economic forecasters.
However, the housing industry has proved robust recently and with the existence of schemes such as Help to Buy it is going to be interesting to see how effective these are in the face of a potential economic downturn.
Michael Dall is an economist at Barbour ABI