Brexit slows construction growth to slowest in six years

Growth prospects for the construction industry in 2018 have been slashed by the Construction Products Association (CPA), while new research suggests that 40,000 construction firms are showing signs of extreme financial distress.

Brexit is the obvious villain of the piece, with a sluggish economy, falling wages and rising costs all under the long shadow it has cast over construction. Growth for 2018 is only expected to rise by 0.7%, the slowest in six years, and a downward revision from 1.2% in previous forecasts.

An increase in infrastructure activity and private housebuilding are expected to be the primary drivers of growth over the next two years which will help offset a sharp fall in the commercial and industrial sectors, according to the CPA.

Looking further ahead, growth for 2019 is projected to be 1.8%, but given the unprecedented economic and political uncertainties following the lack of a significant majority for the UK government as the UK leaves the EU, the risks around this forecast are considerable.

Noble Francis, Economics Director at the Construction Products Association said, “Despite the slowdown in the general housing market, particularly in London, house builders continue to increase supply, albeit more slowly than in recent years. Currently, more than a third of new house building is being sustained by the government’s Help to Buy and should continue to do so over the next 18 months if the wider economy and housing market don’t slow further.

“However, if economic conditions do deteriorate further, house builders can react quite quickly if necessary.”

New research from Begbies Traynor shows that the construction sector is already ailing. The Red Flag Alert research for Q2 2017, which monitors the financial health of UK companies, showed that sectors facing the largest increases in ‘Significant’ financial distress are property and construction, which saw substantial rises of 32% and 22% respectively.

According to the research, 28,259 real estate businesses and 40,495 construction companies finished Q2 2017 in a state of ‘Significant’ financial distress, providing further evidence of a slowdown in the UK housing and construction markets.

Julie Palmer, Regional Managing Partner, said, “While we are seeing rising levels of distress across all corners of the UK economy, the quarterly deterioration in the property and construction sectors is particularly concerning, raising doubts over whether they have strong enough foundations to cope with upcoming headwinds, from Brexit and the rising cost of imported goods to the widening skills gap and its impact on labour cost inflation.”

According to rail and construction recruitment consultancy One Way, a lack of focus on recruitment could easily push struggling construction firms out of business.

An analysis showed that firms are recruiting on a short term basis and are therefore forced to pay day rates that are well above the standard rate.

“Far too many construction firms don’t have a plan in place for finding skills when they need them on a short term basis and are forced into a situation where they have to pay excessively high day rates just to get the staff they need,” said Paul Payne, managing director of One Way. “You can see why they do it, but by planning ahead, firms can source the best skills in the market, at a fairer price and avoid any unnecessary headaches.

“This doesn’t just make their lives easier when it comes to staffing projects, but also removes some of the excessive costs. When construction firms look to become more efficient they often analyse their raw materials suppliers, however those savings are relatively small in comparison to those that could potentially be saved by developing robust talent pipelines into the industry. These statistics highlight that firms are being pushed to the brink and planning effectively and concentrating on recruitment could help to significantly lower costs.”