Thursday 7 September 2017

Impact of Brexit on Construction Industry

After the decision of Brexit, there is an uncertainty in the economic sector in Britain. Consequently, construction industry is currently facing a slowdown as many projects are being put on hold. In August, the growth in construction sector unexpectedly fell to a one year low.
Economic activity slowed down to 51.1 in August from July’s 51.9 indicating expansion of marginal size according to a survey published with the help of Chartered Institute of Procurement and Supply (CIPS). While 50 is stagnation, anything below that shows contraction in a business sector. Samuel Tombs from Pantheon Macroeconomics who is a major UK economist, states that, the figures indicate that construction sector is currently flirting with recession.

If Brexit talks don’t progress well, then large firms will be forced to relocate activities to Europe. A range of banks including Goldman Sachs and HSBC have previously stated the possibility of moving staff. Mr. Tombs believes that the negotiations for Brexit will continue progressing slowly. This will lead to more firms acting on contingency plans, through freeing up offices resulting in exhaustion of demand for commercial projects.

After commercial building work dropped at a quick pace since July 2016, the civil engineering sector came close to stagnation but the construction industry kept growing due to house building activities. The employment rose at the slowest pace due to completion of more projects and lesser new projects.

Reason for slowdown in construction sector:
Duncan Brock, who works with CIPS, believes that there are more than one interrelated factors for this situation. The major factors are economic uncertainty, delayed decisions due to Brexit and reduced expenditure by government. These factors if not improved immediately can easily lead to a recession in construction.

The survey was done after the recent fall in Sterling value which increased pressure on the construction sector. Consumers in UK need to pay more costs and businesses who have to purchase products from abroad have lower purchasing power thus making the market slower. This, if not mitigated, will lead to accelerated inflation forcing the Bank of England to increase interest rates for coping up.

The survey also took into account the slowing down of house prices since the middle of last year after Brexit. This was pointed out previously by the Office for National Statistics. But, since the mid 70’s, house prices have garnered a support from even the lowest brackets of unemployed people and low interests reducing mortgage costs.

Possible outcomes:According to these results, the construction sector may contribute only a little portion to GDP in the economic quarter ending in September. Many firms are also preparing themselves if these conditions continue into autumn and lower confidence in firms leads to weak trends for creating jobs.

Joshua Mahony, who is a market analyst at trading firm IG, believes that according to current situation, there is a strong possibility for construction sector to move into contraction in coming months. But, there is also a potential for robust production especially if the Brexit discussions go well. Also, since homes are a necessity, the government may subsidize house owning with the decrease of Sterling value. Until final decisions are made and market stabilizes, the construction industry will keep flirting with recession.

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from Econ Construction LTD http://www.econconstructionltd.co.uk/impact-brexit-construction-industry/

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