Construction industry loses momentum: what does the future hold?

United Kingdom

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Fears of an economic downturn became a distinct reality for the construction industry this week. Construction output figures released by Markit/CIPs show that the industry has suffered its fastest overall decline since June 2009, when the banking crisis started to hit the real economy. The steepest of falls was in commercial building, alongside a drop in civil engineering and residential construction.

The latest fall means there have now been two consecutive quarters of negative growth, which officially puts the industry into recession, albeit the reality is that it has never recovered from the 2008 banking crisis and construction output is still below the pre-2008 peak. The pre and post-EU referendum uncertainty is likely to be the biggest contributor to the fall in output as client adopt a “wait and see” approach, although the industry is generally hopeful that this will be a period of delay rather than than the precursor to the widescale cancellation of projects.

The output figures are a further blow to an industry already thrown into uncertainty by the post-Brexit changes in the Government. This was most vividly illustrated by the surprise (and in some quarters baffling) announcement by the Government that it will delay the £18bn Hinkley Point nuclear power project ‘whilst it pores over the fine detail of the deal’. Just to recap, the Government says needs more time to look over the fine detail of a deal that’s been on the table for months and which the Government was integral in putting together, a deal that had already been signed-off by the Chinese investors so actively courted by the former PM and Chancellor, and which was just awaiting EDF board approval.

Whether or not the intention was to cause frustration in Beijing, that seems to have been the impact given yesterday’s reports of thinly veiled threats around the likelihood more widespread Chinese investment into the UK’s construction, energy and infrastructure sectors – investment that is estimated to be worth in excess of £100 billion over the next ten years. Let’s hope the Government can quickly address this and put the industry back on a more stable and certain footing.

One thing is for certain, all eyes will be on the Conservative Party conference in October to see what support the Government will pledge to infrastructure through policy announcements, budgets and project decisions. Hopefully the Government will give its full backing to the projects set out in the National Infrastructure Delivery and give the ‘go ahead’ to some of the UK’s key infrastructure projects which will in turn give opportunities for those in the construction sector.

On Wednesday 5 October, Nabarro will be hosting a panel debate chaired by Lord Daniel Finkelstein on ‘The Future of UK Infrastructure’. The session which will consider infrastructure policy announcements and spending commitments and their impact on the sector.