Some ominous signs post Brexit

Though the ramifications of June’s historic referendum will only truly be known in the coming years, already certain sectors are feeling the difference. In few areas of the economy is this truer than in construction, and judging by our latest State of Trade Survey – our quarterly assessment of construction SME sentiment across the UK – while many indicators remain positive, there are one or two worrying signs.

Our current number one concern is a general faltering of confidence in the economy. Construction is often seen as a weathervane industry and it’s typically one of the first sectors to be hit if there’s a downturn in business or consumer sentiment. Encouragingly, the period leading up to the referendum was positive for construction SMEs across the UK, suggesting that while larger commercial investment decisions may have been deferred, home owners – a key market for our members – were undeterred by the prospect of Brexit.

However, there were some ominous signs in the results. New work enquiries dipped, and two-thirds of bosses were anticipating material costs would rise even prior to the Brexit vote. With the pound plummeting in the weeks that followed, industries which have a reliance upon some imported materials, such as ours, may be nervous. Members are already reporting a jump in the price of steel and timber as a result of the falling pound.

The dramatic fall in currency value could therefore exacerbate the existing industry trend towards price inflation. Combined with the continuing skills shortages shown in our survey results, which puts upwards pressure on salaries and wages, the costs associated with running a small construction firm are on the rise. Too many are already operating on thin margins and are forced to tender at prices which barely return a profit in order to remain competitive. This could become problematic indeed if consumer demand does drop off.

In light of a slew of downbeat industry surveys, including preliminary indications from the Office for National Statistics (ONS) that the construction sector is now in recession, we are firmly of the belief that the time is right for the Government to reimagine the role the state can play as a source of capital investment. Firms need to know that there is a reliable stream of work available to them in the future, lest we risk even a minor repeat of the ruinous years that followed the financial crisis, when we saw so many firms go to the wall.

The quiet jettisoning of the Government’s fiscal target opens up the prospect of increased investment in areas where that investment is sorely needed, such as infrastructure and housing. If the economy is about to slow and the construction sector – one of the prime drivers of the economy – begins to show signs of struggling, some well-targeted funding could be used to underpin long term growth, all while giving a shot in the arm to UK Plc.

 

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