The Limited Impact Of Brexit On Construction And The Residential Sector

December 19, 2018
The limited impact of Brexit on construction and the residential sector

With positive figures observed in construction output, as well as promising residential trends in regional cities, Brexit seems to have had a minor impact since the Referendum in June 2016. In the case that a ‘no deal’ Brexit scenario is avoided, future predictions also remain optimistic.

According to the latest Chartered Institute of Purchasing and Supply (CIPS) construction Purchasing Manager’s Index (PMI), there was a solid expansion of UK construction output in November. The index score at 53.4 (up from 53.2 in October) represents the strongest growth rate since July.

Increase In House Building Gives Rise To Optimism

The industry reported new work, with rising client demand creating jobs at the fastest rate since December 2015. The latest rise in house building activity is the strongest in three months; the residential sector boasted the fastest growth of construction work in November. Furthermore, sustained increases were seen in commercial work and civil engineering activity.

The optimistic results discussed above are somewhat in dissonance with business confidence levels depicted in IHS Markit survey results. Here, Brexit-related concerns meant business confidence for the next 12 months was subdued. Respondents’ growth projections were low for the next 12 months, despite having picked up from October’s recent low.

This was especially noticeable in the commercial property sector. The UK’s professional services and financial companies have been reluctant to commit to new office-building programmes without clear information on the UK’s final trading relationship with the EU. Nonetheless, Samuel Tombs, chief UK economist for Pantheon Macroeconomics commented that “2019 has the potential to be a great year for the construction sector, provided a no-deal Brexit is avoided”.

A different report by Hometrack points in a similar direction; it suggests the impact of the Brexit decision taken in June 2016 has been limited. Six of the UK’s largest cities recorded year on year growth figures over 6%. These were Leicester  (up 7.7%), Edinburgh (7.4%), Manchester (6.3%), Birmingham (6.2%), Nottingham (6.1%) and Liverpool up by 6%.

House Price Growth On The Rise – But Not For All

The discount between the asking and achieved prices continues to narrow across regional cities. Meanwhile, sales volumes are keeping pace with new supply, in turn, supporting price growth. Birmingham, Edinburgh and Manchester have all registered house price growth of 15% since the Referendum, a figure almost three times the growth in average earnings.

On the other hand, London has not enjoyed the same market conditions, given the registered year-on-year fall in house prices of 0.4%. However, this is not seen as a direct result of Brexit uncertainty.  Other important factors come into play such as stretched affordability, multiple tax changes and new mortgage regulation. These have significantly subdued demand and reduced prices in London.

Data shows that Brexit uncertainty has had a very limited direct impact on the housing market and construction figures. Market leaders expect trends to continue in the same direction until the outlook becomes clearer. This comes as reassuring news for both investors and developers, who face decisions regarding the timing of projects and their subsequent success. This is especially good news for those working with the residential sector.

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