Brexit to bring Construction Recession

Author: ross sturley cimcig

It feels that all the advice available post EU Referendum is rather "Dad's Army". Either "We're doomed", or Don't panic". In search of something calmer and more detailed I attended the Glenigan Breakfast Briefing this week.

When the first speaker, Arran Russell of political analyst DeHavilland started out with a slide entitled "what we don't know", I thought perhaps there wouldn't be a lot of clarity added to my knowledge pool, but fortunately things improved radically.

The bottom line is that while government spending on infrastructure, helath, and education may make things less bumpy than they might be, we are set for a construction sector recession brought on mainly by nervousness in the commerical office, industrial, and private housing sectors.

This forecast is being caused largely by uncertainty resulting from the vote to leave the EU. This uncertainty is set to continue for some time - not least because nothing will happen until there is a Conservative Party leadership election result, but also because no real clarity will emerge until we conduct negotiations about how we exit the EU, after we invoke Article 50, which could all take years.

Arran felt some fiscal and monetary stimulus was likely, indeed the bank of England seem ready to take action to keep the economy as buoyant as possible. However, all this suggests that residential and commercial construction could suffer in the short and medium term, as the uncertainty plays out.

Allan Wilen of Glenigan was the one who predicted an immediate construction recession. Given we have had one quarter of decline already this year, as markets slowed in the run up to the Referendum, it would only take one more quarter to produce that, so we are well on the way. However, the major market shock that Allan described means that to do good business during this time, companies will need to be fleet of foot and flexible.

Product manufacturers may see some short term benefit from the exchange rate correction. However, in the longer term, reduced market access is likely to hit those who export  to the EU, and reduced demand domestically will make business harder.

Allan's forecast showed continuing growth in the education sector, and in healthcase making up for a cooling private housing market, a wak retail sector, and offices and industrial falling theough lower occupier demand.

Another Brexit effect could be reduced employment, and skills and materials shortages.

Infrastructure was another area of possible growth though. Both Allan and NCE Editor Mark hansford pointed to a number of schemes where Government money is likely to continue to flow. Hansford even suggested that contractors should work up some schemes that might unlock economic benefit, as a future Chancellor might look for 'shovel ready' schemes to invest in if the economy needs boosting down the line.

So, not an overly positive picture, but the overall message was - this is where we are, all we can do is work to get out of it. Let's start.

CIMCIG has an event focussed on forecasting the effects of Brexit on July 21. A few places remain - book yours at https://www.cim.co.uk/eventbooking/?crid=76907