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Elections and output: What happens next?

After a turbulent 12 months, isn’t it time we all just got back to business as usual?

The past 12 months have felt like a constant political campaign ever since the EU referendum last June, with political wrangling and point-scoring rarely out of the headlines.

And spare a thought for those of us in Manchester (like myself), Liverpool, Birmingham and elsewhere, who had an additional round of campaigning to deal with in the form of metro mayor elections.

Regardless of what happens, we have historical precedent for how similar votes in the past have affected construction activity, with each having a seemingly different effect on new orders and output.

Brexit vote comparison

Let’s start with the EU referendum. We saw an immediate slump in activity in the two months following the Brexit vote, according to the Markit/CIPS Construction PMI, but since then it’s been relatively steady growth, culminating in a 17-month peak in activity last month.

Even those contractors that saw a slowdown in new orders in the latter half of the year have since reported a pick up in their pipelines.

“In Q4 you could almost hear the tumbleweed blowing around our estimating department,” reflects a senior figure at a major subcontractor that works across commercial projects in the UK, when I ask how business has been in the past six months.

That was supported by ONS statistics, with new orders having dropped quarter on quarter in Q3 2016 – by 2.6 per cent – and again in Q4 – 2.8 per cent.

Incoming Sir Robert McAlpine chief exec Paul Hamer also told me this week there had been a significant slowdown in new orders, with a considerable number of clients pushing jobs back into April and May. “Normally in Q4 we have a significant pick-up as we see a dash for the March year-end, with clients using up investment funds and so on,” he said.

“But what we saw this year was slightly different – we don’t know whether it’s a subtle change in spending patterns, or whether it was uncertainty around Brexit, but that normal ramp-up didn’t materialise.”

But both reflected that there has been a significant upturn in new orders in the first half of the year so far, with more firms pushing on with projects after that brief referendum-related pause.

This can be seen in the latest ONS data, which points to a 0.7 per cent increase in new orders in Q1 this year.

That means impact of the vote has been more immediate than long term, with the knock-on effects essentially shunting projects back as clients paused for breath – but crucially, the plug hasn’t been pulled on many of these schemes.

Immediate impact?

So what about yesterday’s vote?

There have been plenty of pledges about who’s going to build what and how they’re going to pay for it, but don’t expect the impact of the election to be anything like as immediate as for the EU referendum, particularly if we end up with a minority Conservative government, perhaps propped up by the DUP.

Policies take months to come together; are most likely put forward at the next Budget; and are steadily enacted after that. So don’t expect any manifesto pledges to start impacting your business right away, particularly in terms of new projects and cash coming forward within a matter of months.

It’s more likely to be a year, if not more, before anything new is seriously brought to the table.

What’s more, there’s more that the parties agree on than they probably care to admit when it comes to housebuilding and infrastructure, with all the major players pledging more support for new homes, rail and road.

We’ve written in the past about what impact a general election has on construction output and new orders, and the evidence suggests it’s not actually a great deal, with a small hit in new orders being evident on each occasion.

2010 contrast

What’s particularly telling is the impact of a hung parliament that led to a coalition last time, in 2010. There was a surge in new orders in Q1 as Gordon Brown’s Labour government pushed projects over the line prior to the election, followed by two consecutive quarters of decline in Q2 and Q3.

Orders picked up briefly in Q4 2010 before collapsing, with seven consecutive quarters of declines until industry activity finally rebounded towards 2013.

But looking at our last hung parliament might not shed much light on what will happen now; the set of circumstances were significantly different in the latter half of 2010, with the resultant coalition enacting a host of austerity measures amid a crippling economic downturn.

Looking back at the 2015 general election meanwhile, there was a mere 1.6 per cent decline in orders in Q3 2015, followed by growth of 2 per cent in Q4 and largely positive figures since.

We’re unlikely then to see a sudden pull of the plug on public projects and commercial orders.

Does that mean business as usual? Not entirely, but the industry won’t have the rug pulled out from under its feet either.

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