Commercial Developers Wait for Brexit Clouds to Clear

Growth in the construction industry slowed last month for the first time since September.

construction things on a table

Uncertainty over Brexit and the future trading relationship between Britain and the European Union was blamed for moderate fall in commercial building work, continuing a downward trend that began in July.

The slowdown was outlined in the purchasing managers’ index for construction, a closely watched survey of the health of the sector. The industry makes up about only 7 per cent of the economy, but developers’ investment decisions are an indicator of how optimistic businesses are about Britain’s confidence and prospects.

The survey’s measure slipped to a balance of 52.2 in December, after hitting a five-month high of 53.1 in November. Any reading above 50 indicates growth, while a figure below represents contraction.

Housebuilding was the key engine of growth, according to the companies that took part in the survey, with residential work expanding in December for the 16th consecutive month, though it slowed slightly from November. Housebuilders’ output has been supported by the government’s Help to Buy scheme, which on some sites has provided as much as 80 per cent of all sales. The scheme enables buyers to purchase a home with a 5 per cent deposit if the property is newly built and is sold for £600,000 or below.

The slowdown recorded in commercial work is in part because of the time involved. Projects can take up to five years to complete and, with the UK’s trading relationship, financial rules and immigration policies uncertain, many developers are shying away from starting long-term schemes.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply, which helps to compile the survey, said: “It appears that the continued fall in commercial activity was testament to Brexit-related uncertainty on the horizon and the sector’s fear about the direction of the UK economy, as clients still hesitated to spend on bigger projects.”

Civil engineering stagnated, but this ended a three-month period of decline, the longest such spell for more than four years.

However, total new orders picked up at the fastest pace for seven months in December. Anecdotal evidence from the survey’s respondents showed that there had been an “improved flow of enquiries” in recent months, alongside a gradual rise in clients’ willingness to commit to new work.

This promise of greater workloads also led to a boost in hiring and to the strongest rise in demand for raw materials, such as bricks, blocks and insulation, in two years. This, however, brought its own problems: the increased demand has led to rising prices for construction materials and a “sharp lengthening” in the time it is taking suppliers to deliver them.

Tim Moore, associate director at IHS Markit, which compiles the survey, said: “Exactly 37 per cent of the survey panel forecast a rise in construction activity over 2018, while around 11 per cent anticipate a reduction.

“As a result, the balance of UK construction companies expecting growth in the year ahead remains among the weakest recorded by the survey since mid-2013.”