After months of campaigning and countless warnings about the dire consequences a Brexit vote might have on the UK construction sector, on 23 June firms across the country held their breath to await the EU referendum result.
Regardless of which way you voted, the initial Brexit shock was felt by everyone. In the month following the result, the construction sector’s purchasing managers index (PMI) fell to 45.9 – its fastest decline since 2009.
However, as the post-referendum reality sunk in, so did the realisation that the fundamental structure and health of the UK construction sector had not, and would not, change overnight.
Leading the bounce back
While uncertainty remains a significant concern across all areas of the economy, the construction industry finds itself in stable, albeit uncharted waters.
According to our latest Red Flag research, which monitors levels of financial distress across the UK economy, construction firms as a whole have bounced back since July’s apparent wobble.
In the three months following the referendum result, the construction industry recorded the most marked improvement in financial health of any sector in the economy, as the number of firms experiencing ‘significant’ distress fell by 11 per cent compared with the three months before the vote (versus an average fall of 6 per cent across the rest of the economy).
“These measures should put the UK construction sector in an even stronger position to survive any potential Brexit fallout – whenever that might hit”
Meanwhile the most recent construction PMI recorded a score of 52.3 in September, up from 49.2 in August – a further indication of the sector’s growing resilience.
Regardless of any referendum-related uncertainty, construction activity continues to rise. The weak pound is starting to entice new foreign investment, while housebuilders continue to see strong buyer demand and are increasing their volumes as a result.
Crucially, the government remains extremely supportive of the sector, recently announcing fresh housebuilding measures and a renewed commitment to major civil construction projects, such as High Speed 2.
While it is still much too early to tell what longer-term impact the ‘Leave’ decision might have on the UK economy, these measures should put the UK construction sector in an even stronger position to survive any potential Brexit fallout – whenever that might hit.
The only real certainty we have is that uncertainty will continue and so must be prepared for.
For the housebuilders in particular, the main threat is around affordability, in the event that Brexit concerns drive up the cost of living or prompt stagnation in real wage growth.
But that is no reason for the construction sector to rest on its laurels – far from it. There is a great deal of work to be done and despite dark clouds on the horizon, it remains business as usual.
Julie Palmer is a partner at Begbies Traynor