Housebuilding Recovery Lifts UK Construction Sector

Industry Report Spells Good News for Construction and Related Industries

The construction sector has seen a downturn in recent months, but November figures suggest that the industry is in recovery.

Uncertainty over Brexit has combined with a general economic malaise to make 2017 a difficult year for the construction sector. However, the latest IHS Markit construction purchasing managers’ survey showed a significant improvement for November, with the index rising from 50.8 in October to an impressive 53.1. This was well in excess of the predicted reading of 51.

Any figure above 50 implies a market that is in growth, and these latest figures come as a relief to both the construction industry itself and related sectors such as transportation, measured building surveys and logistics.

Recent months have been somewhat fraught for all these industries, with official figures showing that the overall construction market had been in a state of steady decline over the first two quarters of 2017. The indication that the sector is managing to build some growth momentum is good news for everyone.

Residential construction projects on the up

The main driver behind the growth has been an increased demand for new houses, thanks largely to the Help to Buy equity scheme that was announced back in 2013, and received a welcome boost when the government announced an additional investment of £10 billion over the next three years. The spike in demand that this prompted in October was maintained throughout November.

Commercial and civil engineering sectors continue to fall

While the residential construction market is looking in good health for the medium term, the same cannot be said for the commercial sector.

Commercial construction has continued to contract since the Brexit vote, as the financial and professional sectors hold back on expansion, fearing a slow down when Britain leaves the European Union. Construction in the commercial sector is highly sensitive to Brexit uncertainty, due to the length of time it takes for projects to complete and the need for businesses to accurately predict long-term trends before committing to a significant investment.

As it stands, most ongoing projects are ones that got underway before the EU referendum, and as they reach completion, there are no new ones in the pipeline to replace them.

Much the same can be said for civil engineering projects, and for the same reasons. Major projects such as Crossrail in London have reached completion, and again, there has been nothing to replace them.

The Brexit factor

Samuel Tombs is Chief UK Economist at financial research firm Pantheon Macroeconomics. He told the Financial Times that the when the final Brexit “divorce terms” are agreed, it will be likely to prompt an increase in corporate confidence, enabling industry to start on its own road to relationship talks and begin to plan for new projects.

However, he warned that such a change would not happen overnight, and that the implications of Brexit on commercial and large-scale civil engineering projects would be one that would be felt for many years to come.

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