Construction industry uneasy in the face of potential recession

When the UK election was called, the phrase “strong and stable” government was coined and was then repeated as a mantra.

The trouble is that UK business, especially the construction and property market, is not feeling particularly stable and hence cannot be seen as that strong.

It is no surprise, then, that five of the UK’s largest property funds are holding more than a fifth of their assets in cash, rather than bricks and mortar, as fears persist of a repeat of last year’s run on the real estate investment sector.

At my firm we are still witnessing a busy global market, but in the domestic market much of the work was commissioned a while ago and pipeline is the issue. Investors are being spooked by the uncertainty hanging over us: you don’t build if you believe the UK economy is shrinking.

This is a market that thrives on certainty - it does not warm to a potential boom-and-bust scenario. The election in 2015 was followed by a weak Conservative win, the 2016 Brexit vote came along as an unexpected upset and then there was the shock result of last week’s election. Now there are still the protracted and painful negotiations over leaving Europe. If the UK were a business rather than a country it would be rated as economically unstable at best.

Make the decision to build

At the sharp end we are seeing the impact that Brexit is having on construction costs, with an expected 2.5% price rise in the building sector and a 4% rise in infrastructure building costs predicted. Labour shortages and the weak pound are already driving up prices.

There is now a definite flow of skilled craftspeople leaving our market to return to the EU or choosing to swerve the UK in the first place. It is not just bricklayers and plasterers that fear a post-Brexit UK; we are told that many architectural students are dissuaded from coming here at the moment.

Now may be the time to press the button and make the decision to build before we see prices rise further. We already had a shortfall of more than 400,000 tradespeople predicted by 2020 before the Brexit vote.

We can see substantive wage rises already on the horizon, which in my view will have a greater short-term impact than rising material costs. You can change the specification but it is impossible to build without the labour.

In the short term, construction inflation is already undeniably here, impacting upon the cost of building.



Richard Steer Chairman Gleeds

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Julian Barlow

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