The UK construction industry is suffering from uncertainty caused by Brexit after new figures showed the sector slumped in September to its lowest point since last year’s Brexit referendum. Meanwhile the pressure of a long-term skills shortage is set to increase as EU workers become more reluctant to fill gaps in the industry.
Construction firms were found to be putting off UK investment projects because of fears around “the path to Brexit” and employers say it has already become much harder to retain many of the 176,000 EU-citizen workers in the industry, and they are worried that new immigration controls after Brexit will make it tough to replace them.
The data compiled by analytics firm IHS Markit showed falls in civil engineering work and commercial development projects, with only house building showing any growth. Developers are also facing higher costs from imported materials because of the weakened pound.
The findings were revealed in a Purchasing Managers’ Index survey that is used by finance and business leaders to understand economic trends. The paper concluded that optimism in the industry has fallen to its second-lowest level since April 2013.
Fragile Confidence?
“A shortfall of new work to replace completed projects has started to weigh heavily on the UK construction sector,” he said.
“Aside from the soft patch linked to spending delays around the EU referendum, construction companies have now experienced their longest period of falling workloads since early 2013.
Fragile client confidence and reduced tender opportunities meant that growth expectations across the UK construction sector are also among the weakest for four-and-a-half years. At the same time cost pressures have intensified driven by supply bottlenecks and rising prices for imported materials,” he said.
Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply, gave a daunting view of a spiralling industry. “A dismal picture of construction emerged this month as the sector showed signs of worsening business conditions across the board.
With the biggest contraction in overall activity since July 2016, and a drop in new orders, optimism was in short supply,” he said. “Respondents pointed to obstructive economic conditions and the Brexit blight of uncertainty, freezing clients into indecision over new projects. Even housing, the stalwart of the construction sector stuttered with a dwindling performance but civil engineering was the biggest victim falling to its weakest level for four and a half years.”
Worse to come?
Before the referendum the law firm Shepherd and Wedderburn examined the potential consequences of a Leave vote. It said the UK construction industry generates around £90bn a year, accounting for 6.7% of GDP, and employs over 2.9m people.
It warned that the shortage of workers would be badly affected if freedom of movement were stopped. “The construction industry is already struggling with a labour and skills shortage caused by the job losses resulting from the recession and an ageing workforce and therefore a high retirement rate – which is likely to continue increasing as 22% of UK construction workers are over 50 and 15% are over 60,” it said.
The Office for National Statistics estimated that about 10% of the UK’s construction workforce are foreign-born while a survey of 332 members of the Royal Institute of Chartered Surveyors in May found 53% said that the skills shortage was a key burden to growth.
“With Britain set to leave the European market we must ensure that we are not left in a skills vacuum,” said Barry Cullen, RICS future talent director. “An estimated 176,000 EU citizens are employed in the construction business, so it is vital that government and businesses work together to ensure they are able to remain or risk leaving the industry short of the people they need.”
by Stewart Vickers
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