Will Brexit make or break the UK’s construction industry?

Jerald Solis - Experience Invest
7th February 2020
construction 7

When the UK voted to leave the European Union (EU), the UK construction industry immediately found itself in a precarious position.

Its reliance on the EU as a source for skilled workers and construction materials looked to be under threat. And in the years following the EU referendum in June 2016, the notion that a no-deal Brexit was a distinct possibility only heightened these concerns.

2019 proved to be a challenging time for the private sector. The lack of political leadership surrounding Brexit fuelled economic and political uncertainty, making it all the more difficult for businesses to plan for the future. The construction industry also faced its own set of challenges – overall monthly output was decreasing, and increased pressure was being placed on developers to address the housing crisis. Prime Minister Boris Johnson sought to address this uncertainty by calling a general election, and his gamble paid off – delivering a majority-led Conservative government.

As of 31st January 2020, the UK has entered a transition period which will last until the end of the year. It is during these negotiations that the UK will need to ensure any agreement made with the EU is in the interest of the construction industry. This includes addressing any potential skills shortage and ensuring companies can still access the EU market for building materials without facing costly tariffs.

Will Boris Johnson inspire a full recovery of the construction industry?

The 2019 General Election successfully broke the political deadlock by delivering a majority government. In the ensuing days, investors readily flocked to UK assets – the London stock market surged by £33 billion while the sudden demand for property led to a visible increase in the rate of house price growth.

Some commentators are sceptical about the longevity of the Boris bounce. After all, Brexit negotiations have only just begun, and it is questionable whether an arrangement can be delivered come the end of this current transition period on 31st December 2020. However, we also shouldn’t downplay how different sectors have been performing following the general election.

Take construction as an example. The industry has been struggling to increase its total output, which has been in decline for over 12 months. June 2019 also marked the construction industry’s worst-performing month since 2009 with output in sharp decline. However, figures from Markit/CIPS UK Construction Index for January revealed that the rate of output decline is slowing down. This is being partly attributed to a recovering pound and greater political certainty.

It is too early to say whether Brexit negotiation will fuel or discourage the construction sector’s recovery. We have 11 months to see whether Brussels and London will be able to strike a trade deal between the EU and the UK, not to mention address a host of other concerns. Should the Government wish to maintain the momentum of the Boris bounce, it cannot fall back into old habits.

We need to see leadership, transparency and guidance. Yes, Brexit is important, but it cannot override the pressing issues being faced by sectors like construction which have long felt neglected by Westminster. The Spring Budget on 11th March is the first of many opportunities the Government will have to provide this leadership, and I hope the construction industry gets at the very least a mention. After all, property developers will be vital to addressing the housing crisis.

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