Construction workload slows due to Brexit uncertainity, says RICS

Workload in the construction industry moderated in the second quarter with a significant slowdown in the private commercial and industrial sectors in particular, which extended a trend that went back to the middle of 2015.

Workload and employment was predicted to grow, but the Royal Institution for Chartered Surveyors (RICS) construction market survey found it would be slower than previously anticipated.

The survey, conducted after the EU referendum Brexit result on 24 June, found that 17% more respondents reported a rise in activity in the last three months compared to the 28% in the first quarter of the year. The sectors which experienced the slowdown were the private commercial, industrial and housing sectors in particular.

However 27% of respondents reported a rise in private housing activity, which was down 35% in the first quarter, as 17% saw their workloads in the private commercial sector rise in the second quarter.

RICS chief economist Simon Rubinsohn said: “The latest results from the RICS construction market survey suggest that the second quarter of the year saw a further moderation in the growth trend which is not altogether surprising given the build-up to the EU referendum. Significantly, the biggest issue at the present time alongside uncertainty looks to be credit constraints with over two thirds of contributors highlighting this issue as a concern.

In Scotland, workload activity flatlined relative to the first quarter, but in other parts of the UK they continued to report a rise in workload. In Wales, and in English regions growth slowed relative to the previous quarter.

In Northern Ireland activity picked up due to firm growth in the private housing and commercial workloads. Respondents, on average, said that 25% of their work outside was outside NI and about 20% of contributors expect this to increase over the quarter.

Respondents to the survey said finance was the biggest constraint as 35% said a lack of funding was restricting property developments. But 60% said planning and regulatory delays were constraining construction.

The survey also highlighted the need for skilled workers as 55% reported that there was a skill shortage in the country with bricklayers and quantity surveyors in particular.

Employment is expected to rise just 0.6% for the second quarter compared to the 2% predicted in the previous quarter.

Labour and material costs continued to rise with 47% and 41% of surveyors respectively seeing a rise.

However, despite the rise of economic uncertainty due to Brexit, 23% more contributors expect activity to rise in the industry than fall. Contributors, on average, said they foresaw their workloads increase by 1% over the next 12 months, which was down 2.8% in the first quarter.

Rubinsohn said the £250bn monetary stimulus the Bank of England provided for the economy should alleviate pressure in the slowdown in the construction and housing industry, but remained cautious regarding the UK’s negotiations with the EU.

“Encouragingly, the swift actions of the Bank of England in creating additional capacity for the banking sector to provide funding to meet demand should help alleviate some of this pressure. Nevertheless, anecdotal evidence does indicate that the challenge for the British government in establishing a new relationship with the EU could see some investment plans in the construction sector scaled back,” Rubinsohn said.

The previous RICS survey on the 21 July, found that the commercial housing market was in the early stages of a downturn due to Brexit uncertainty.

On Tuesday Deutsche Bank slashed its price targets for leading UK housebuilders such as Barratt Developments, Berkeley and Persimmon, again, due to Brexit uncertainty, although the bank continued to be positive about the sector.