Growth in construction workloads pegged by uncertainty in SW

South West workloads have slowed across all sectors of the construction industry as Brexit delays investment, according to the Q2 2017 UK RICS Construction and Infrastructure Market Survey.  Anecdotal evidence from respondents suggests that uncertainty regarding Brexit is weighing on investment decisions, alongside the political turmoil generated from last month’s general election.

After a positive picture in the Q1 survey with the growth in workloads accelerating at its strongest pace since the referendum, there has been a modest slowing in Q2 2017 with private commercial and industrial sectors seeing the most significant easing in activity across the region.

That said, a net balance of 41% of contributors continue to report a rise in private housing activity in the South West. Although growth in total workloads has slowed in the sector, it is still rising, with 20% more respondents reporting an increase (down from +32% recorded in the previous quarter). Expectations for the next 12 months also remain relatively positive in the South West, although respondents appear noticeably less optimistic on their profit margins.

The more uncertain outlook for the economy as a whole has led to a less optimistic outlook for the sector over the year ahead in the South West; even so, 36% more contributors expect activity to rise rather than fall. Only 29% more contributors now expect to see employment rise rather than a fall in the South West.

Despite the slowdown in growth, skills shortages persist with 57% of contributors reporting them as a constraint on growth. After having eased in 2016, the intensification of labour shortages appears to be biting once more. The lack of quantity surveyors and bricklayers appears to be particularly acute, but the shortfall extends to other construction professionals as well.

Tender price expectations over the next twelve months remain unchanged in Q2, with respondents envisaging greater price pressures. The expected increase in tender prices may signal rising costs and shrinking profit margins for South West businesses. Indeed, expectations on profit margins have eased from a net balance of 19% to 14% in the latest results.

Philip Stuart-Harries MRICS of Bailey Partnership in Bristol, commented: “The short term uncertainty in financial markets and loss of EU funding following Brexit will have a significant impact on the construction industry in the South West in the coming months, with a number of large projects now at risk.”

Jeffrey Matsu, Senior Economist, commented on the latest RICS survey data: “Economic and political uncertainty appear to be weighing on sentiment, but all things considered, current conditions and year-ahead workload expectations are holding up rather well relative to the longer-term trend. Given the ongoing nature of Brexit negotiations, it remains to be seen what impact this will have on financial conditions or the availability of skilled labour to the industry.”