Construction Industry Having to Dig Deep Post Brexit Vote

Posted by Martin Heaton on 31 July 2016 | 0 Comments

Recent figures in the construction industry are painting a difficult picture for UK industry post-Brexit.  

 

 

 

 

 

 

 

 

 

According to the ONS, the construction industry was in recession even before the Brexit vote, after a second successive quarterly decline of 0.4% in 2016. This is despite a reported 0.6% expansion in the UK economy overall in the months leading up to the June 23rd vote.

The ‘no’ vote, as we all know, had a profound effect on the UK economy, wiping millions of pounds off the value of many UK businesses. British property developers and builders went through a particularly bad time, with the largest firms seeing the value of their shares drop dramatically immediately following the result.  The biggest loser, British Land, saw share prices fall from 762.5p to 613.5p on the 23rd June.

However, history tells us that the construction industry will always over-react to negative sentiment, and as such will be in particular difficulty over the coming months, while things settle down.

And they will settle down.

Despite what happened on the 23rd June, Britain has not left the EU, and will not leave until all negotiations post the activation of article 50 have been finalized. The UK may not ever leave the EU if the government is able to negotiate an alternative deal with the European parliament. The huge market crash that was experienced after the vote was based on the financial markets, which reacted negatively out of surprise at the result. The uncertainty over the future of British trade was relatively short-lived, and markets bounced back, at least in part, during the last week of June and the beginning of July.

Despite the early drop, British Land have actually claimed a “robust” start to the year, with the CEO Chris Grigg stating “British Land has entered this period of post-referendum uncertainty in a robust position. We have a strong, resilient business with a clear strategy.” And with a currently very strong portfolio, and share dividends for Q1 confirmed at 3% higher than previous year, things aren’t looking so bad for the British firm.

Other property developers and builders saw similar drops, but have continued to recover slowly since the vote, even amid speculations that house prices will likely fall during the last half of the year. Barratt Developments, which also saw a 6% drop on the 23rd June, was initially recovering well since the vote. Though after recent comments made by the CEO David Thomas, the share price wobbled: “Following the EU referendum, we are mindful of the greater uncertainty now facing the UK economy. Consequently, the immediate outlook for our industry is less clear and it is too early to draw any conclusions regarding market conditions from the short trading period since the referendum.” Mr Thomas then went on to suggest that they would possibly ‘slow down build programmes’ to counteract this insecurity.

Essentially, we are hearing the same from all corners of the market; while there is uncertainty, especially regarding house prices in the coming months, we should remain calm and use the time to continuously assess the market and be prepared for future events.

With Brexit negotiations expected to take a minimum of 2 years, and could even run until well into 2020, according to the foreign secretary, we need to turn this into an opportunity for our industry, and use it as a time to strengthen partnerships, increase diversity in a shrinking market, and encourage resilience.

The construction industry wasn’t in great shape pre-Brexit, it’s not in particularly good shape now; it’s clear that changes need to be made, and now is the time to make them.


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