Growth in London’s construction market suffered a sharp slowdown during the third quarter, as a survey released on Thursday showed mounting unease within the industry over how the U.K.’s exit from the EU will play out.
The quarterly survey of the U.K. construction industry from the Royal Institute of Chartered Surveyors (RICS) was notable for the frequency of references to fears over the many questions remaining unanswered as the country gears up to break away from the EU.
According to Simon Rubinsohn, chief economist at RICS,in a phone call to CNBC: “Concerns regarding how Brexit will unfold appear more in this construction survey than they did in our residential survey, highlighting the overarching uncertainty resonating through the sector in the build-up to the U.K’s actual departure from the EU.”
“If this apprehension isn’t carefully acknowledged and managed, we could see some further negative implications for an industry that has seen softer data for some time now,” he warned.
A key concern for the industry is potential changes to immigration laws in a post-Brexit Britain which could be unfavorable for a sector that has historically benefitted from sizeable contributions from the migrant workforce.
A survey released Wednesday by the Federation of Master Builders, corralling responses from small and medium-sized U.K. construction firms, reported 59 percent of respondents struggled to hire bricklayers and 55 percent found it difficult to hire carpenters and joiners during the third quarter.
Modernize or die?
The RICS survey described skills shortages as having relented but still remaining “high by historical standards” while a government report released Monday sounded a note of extreme caution over the industry’s workforce, saying “the pure physical capacity of the construction industry to deliver for its clients appears to be in serious long-term decline.”
Entitled “modernize or die”, the report warns the industry suffers from underinvestment in training and development, innovation and raising productivity.
According to Mark Farmer, chief executive of CAST Consultancy and author of the report, in an email to CNBC, “Unlike nearly all other modern industries,the concepts of long term supplier arrangements, product repetition and standardization have rarely been embraced. This alone has driven construction to be a backward, inefficient industry that does not support investment in innovation.”
“There is now an opportunity to drive a greater level of standardization of construction components,with modern digital engineering enabling finished buildings to look bespoke but with a common ‘chassis’. The final challenge is to give the construction industry confidence over long term demand so investment in factories to deliver such schemes is not seen as high risk,” he added.
Farmer emphasized the role of the U.K. government in underpinning such confidence through providing a stable and diverse housing infrastructure to end the traditional boom and bust cycles
Drop in output
Another damaging variable for the industry with currently little consensus on how great its impact will be is the fluctuation of the British pound, down around 17 percent against the dollar and approximately 14 percent lower against the euro since the EU referendum, and with continued downward momentum.
With many materials sourced from overseas it is unsurprising the balance of respondents reported a rise in input costs remained firm during the quarter.
Comments from chartered surveyors also repeatedly emphasized the lack of clarity and extended delays in planning permissions and regulations as areas of key concern for the coming period, with the general belief that distraction over Brexit would not help matters.
The survey’s results resonate with statistics recently published by the U.K.’s Office of National Statistics that revealed a 1.5 percent drop in U.K. construction output during August. The official numbers showed that while new work slipped marginally in August after a broadly flat year, activity recorded in the repairs and maintenance sub-component were notably lower.
Weakness recorded by the RICS survey in London and the south east of England relative to the rest of the country, particularly the comparatively buoyant midlands region, was primarily driven by declines in the private commercial sector.