As the ONS stated recently, there is very little anecdotal evidence that the vote to leave the EU has affected Construction output. However, Brexit has undoubtedly (at least in the short term) affected consumer confidence which will affect the markets within which we operate – particularly RMI over the coming months.
It is difficult to gauge how the economy and the industry is reacting to the UK's decision to leave the EU as there is a lack of data and only insubstantial evidence pointing towards the Brexit uncertainty causing business failures and contract slow-downs. Much of the data so far, has, however, been much better than expected. The latest Markit/CIPS UK Construction Purchasing Managers' Index (PMI) rose to 52.3 from 49.2 in September, beating all forecasts and rising above the 50 mark that divides growth from contraction for the first time since May this year.
We know forecasts have been changed in light of the decision to leave – but again, even forecasts remain less certain than ever. The CPA downgraded forecasts after the decision to leave the EU, but provided us with three potential scenarios for this year ranging from -2.3% to 2.7%. Glenigan forecasts -2% for 2016 and Experian forecasts 0.3%. We can see that even the experts within the industry are struggling to predict the effects of the referendum with any unity or universal wisdom.
Total Output Forecasts from CPA, Glenigan and Experian:
From data we have received so far, we can see the number of mortgage approvals in August decreased by almost 21% year on year, whilst Property Transactions decreased 6.1%, also year on year. This can be, and has been construed by some as a negative effect of Brexit. However, in reality, this continued weakness is most likely to be due to the stamp duty changes in April which caused a huge spike in buy to let transactions before the April deadline, along with a general slowdown in the housing market pre-referendum.
Once Brexit was announced there was a flurry of negative stories in the press, blaming Brexit for a number of issues. However, although this may certainly be true in a number of cases, we have also seen evidence of companies thriving, and profits soaring post referendum. The FMB conducted a survey amongst SME builders last month, with 69% saying they haven’t seen any significant changes to their pipelines after the EU vote. Large house builders such as Persimmon are seeing sustained profit growth and visitors to site up by 20% on last year. Redrow has said it is very much “business as normal” after announcing a record set of results this month.
Construction is encouragingly still on the Government's agenda. Philip Hammond and Sajid Javid announced a £5 billion fund to build "tens of thousands" of new homes "twice as quickly" by 2020. It was also revealed there would be changes in planning rules to encourage more buildings on brownfield sites and derelict shopping centres. How much of what was announced is actually additional money remains to be answered when the autumn statement is revealed next month. Hammond also pledged to “rebuild” our infrastructure, ensuring it is world class to maintain competitiveness, and emphasising it in his Conservative conference speech nine times, though without any definite detail on budgets as yet.
The UK Government has now confirmed the first step towards Brexit will begin in March 2017, and a timetable to exit the EU from spring 2019. This may well create a market response, either positively or negatively, but for now at least, the impact has not been as woeful as some predicted.