RICS: Brexit uncertainty sees slowdown in growth

Workloads have slowed across all sectors of the construction industry as Brexit delays investment, according to the Q2 2017 UK RICS Construction and Infrastructure Market Survey.

Respondents reported that Brexit uncertainty is impacting on investment decisions, alongside the political upheaval stemming from last month’s general election.

Following a positive beginning in Q1 of 2017, with an increase in workloads accelerating at its strongest pace since the referendum, there has been a modest slowing in Q2 2017 with private commercial and industrial sectors seeing the most significant softening in activity.

There was, however, a strong showing in private housing activity, with 29% of contributors reporting a rise in activity.

Although growth in total workloads has slowed in the sector, it is still rising, with 21% more respondents reporting an increase.

Expectations for the next 12 months also remain relatively positive, although respondents appear noticeably less optimistic on their profit margins.

Infrastructure workloads remain broadly unchanged, with roads, rail and energy expected to see the strongest growth in output over the coming 12 months.

Economic uncertainty has led to a less optimistic outlook for the sector over the year ahead; even so, 44% more contributors expect activity to rise rather than fall. This is down from 53% the previous quarter. Likewise, only 29% more contributors now expect to see employment rise rather than a fall, compared with an average of 32% over the four previous quarters.

Financial constraints are reported to be by far the most significant impediment to building activity, and with a net balance of 79% (from 70% in Q1) is the highest reading in four years.

Despite the slowdown in growth, skills shortages persist with 55% of contributors reporting them as a constraint on growth. After having eased in 2016, the intensification of labour shortages appears to be biting once more. The lack of quantity surveyors and bricklayers appears to be particularly acute, but the shortfall extends to other construction professionals as well.

Tender price expectations over the next twelve months remain unchanged in Q2, with respondents envisaging greater price pressures. The expected increase in tender prices may signal rising costs and shrinking profit margins for businesses.

Jeffrey Matsu, Senior Economist, commented: “Economic and political uncertainty appear to be weighing on sentiment, but all things considered, current conditions and year-ahead workload expectations are holding up rather well relative to the longer-term trend. Given the ongoing nature of Brexit negotiations, it remains to be seen what impact this will have on financial conditions or the availability of skilled labour to the industry.”

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