Steven Todd: How will Brexit affect construction?

The forecasts for the construction industry over the next two years are a bit of a mixed bag, primarily as a result of the ongoing Brexit debate and forthcoming negotiations.

Steven Todd says the commercial and industrial sectors are likely to 'bear the brunt' of Brexit uncertainty. Picture: Alan Richardson

Construction activity in the UK is expected to remain broadly flat in 2017 and 2018, but drilling down in to the sector shows potential growth in infrastructure and education with reductions in sectors such as commercial offices and industrial factories.

Since the EU referendum last summer, the level of activity within the sector has remained positive, primarily due to projects being signed off 12 to 18 months before the referendum. As these projects all come on line, the level of activity during the early part of 2017 is likely to remain positive.

However, as we go through to the second half of 2017, there is likely to be a significant difference in the activity levels within the sector, as commercial offices and industrial factories bear the brunt of the Brexit uncertainty. It is generally accepted that projects relating to infrastructure and education – which are either publicly funded or in regulated sectors – should fair better.

Private house building so far has not been affected by the effects of Brexit and is expected to have risen by 2 per cent in 2016 and remain flat in 2017 before a 1.5 to 2 per cent fall in 2018.

Forecasts of reductions in both UK economic growth and real wage growth both weigh on the sector. Recent falls in the value of sterling will also add a further strain to household incomes, which will add to the impact on the sector.

With the upcoming Brexit negotiations, it is vital that the government focuses on reducing uncertainty for the private sector, sustaining the housing sector and ensuring delivery of education construction and major infrastructure projects already in the pipeline.

As we keep hearing in the press, Britain is open for business, so it is vital that government policy continues to reassure and encourage investment.

• Steven Todd is a partner and construction sector expert at EQ Chartered Accountants

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