Construction will be the worst affected major industry following Brexit

Construction will be the worst affected major industry following Brexit, according to a study commissioned by mayor of London Sadiq Khan.

The report, produced by data analyst Cambridge Econometrics, looked at the effects on trade, investment and labour on different sectors of the UK under four different Brexit scenarios.

Under the ‘softest’ Brexit scenario, in which the UK leaves the customs union but remains in the single market to retain free movement of goods and people, construction’s contribution to total UK GDP would decline by 3.5 percentage points – the biggest decline out of any sector, the report found.

In the event of the ‘hardest’ form of Brexit – no transition deal, no membership of the customs union or single market, and trading under World Trade Organisation rules, the industry’s contribution would fall by 8.2 percentage points – with only agriculture’s share facing a bigger fall.

Arcadis market intelligence lead Will Waller said: “It confirms a lot of what we all fear.”

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He added: “We’ve done quite a bit on the ‘hard Brexit’ scenario and for construction it would be really bad news.

“The industry needs to be pushing hard to make the government aware of this.”

Cambridge Econometric attributed the industry’s potential decline to difficulties in acquiring labour; the knock-on effect of a slowdown in the wider economy; exposure to non-tariff barriers, such as quotas and trade licences on imports and exports; and falls in investment.

The data analyst said: “Once the UK leaves the single market, it is likely that the skills shortage could get worse if the new agreements don’t allow for free movement of people.

“This could result in even higher pressures on wages as labour supply contracts, causing construction firms to face considerably higher project costs.”

The report also highlighted that the UK had benefited from €7.8bn of European Investment Bank investment in infrastructure projects, and that SMEs received €666m in European Investment Fund loans during 2015 alone.

The country will lose access to both of these funding sources after Brexit, the study noted, which could “significantly impact the ability of firms to deliver big infrastructure projects such as HS2 and reduce development opportunities for start-ups”.

RICS London policy manager Abdul Choudhury said: ”The UK Government must act promptly to keep EIB funding or introduce a new lender, or lending mechanism, to plug the gap created from the potential loss of EIB funds, particularly for shovel ready projects that are of great importance to London.”

Mr Waller notes that Cambridge Econometics have been forced to make many assumptions in its work, and others are sceptical of its reliability.

CPA economics director professor Noble Francis said: “Forecasting the next 12-18 months is challenging enough given the uncertainties around so Cambridge Econometrics attempting to forecast the effect of a hard Brexit on the economy and construction in London by 2030 is dubious to say the least.

”According to the research, overall impact of a hard Brexit would be a 3% hit to the economy by 2030 but the margins of error must be greater than that.”

Mr Waller also noted that there were threats to construction that were not covered clearly in the report which also needed to be addressed.

“Just disruptions in customs could lead to practical delays in delivery of materials,” he said.

“So we’re all going to have to think about our projects in terms of: do we need to change our procurement, do we need to stockpile materials. And that planning needs to start now.”

He suggested that one possible silver lining could be a decline in commercial construction freeing up the supply chain to put more resources into housebuilding.

The mayor of London said the report emphasised the risks the country faced and called on the government to do more to avoid a hard Brexit.

Mr Khan said: “If the government continues to mishandle the negotiations, we could be heading for a lost decade of lower growth and lower employment.

“The analysis concludes that the harder the Brexit we end up with, the bigger the potential impact on jobs, growth and living standards.

“Ministers are fast running out of time to turn the negotiations around. A ‘no deal’ hard Brexit is still a very real risk – the worst possible scenario.”