United Kingdom / Analyst Insights
Building Pressure: Brexit and the Construction Sector
by IBISWorld
Mar 06 2019

With a crucial series of votes looming, how secure are the foundations of the UK construction sector? 

 

Previously, IBISWorld has discussed in detail the effects of Brexit on the Automotive, Agricultural and Financial Services sector. In this special report, the construction sector comes under the spotlight, with PMI figures showing the sector slipped into decline in February. 

To download the full report, please click here.

 

Below, we provide an executive summary of the report, detailing key concerns, and the effects of a no-deal exit from the European Union.

The Construction Sector

Key points

Labour concerns

EU nationals make up approximately 10% of the UK construction sector workforce, with this figure far higher, at approximately 40%, for the London market. As the domestic workforce is ageing and training schemes are yet to deliver the desired results, operators are concerned that Brexit could negatively influence capacity.

Import and export disruption

Tariffs are minimal on construction products, even if the United Kingdom exits on World Trade Organisation rules. However, delays occasioned by non-tariff barriers and capacity issues at ports would negatively affect profit margins and project timeframes.

Future regulatory regimes

The government has confirmed that existing EU standards would be adopted, with ‘all existing European harmonised standards [becoming] UK designated standards’ even in the event of no-deal Brexit.

Delays to projects and increased costs

Prevailing uncertainty and the inability of many smaller operators to stockpile or effectively prepare for the full range of outcomes has already affected sector confidence and output.

 

The UK Construction sector in a no-deal scenario: summary

The prospect of a no-deal exit from the European Union is highly concerning for construction sector, with the chief concerns surrounding EU labour. Operators across the construction sector are currently facing skills shortages, and EU workers make up approximately 10% of the workforce, with this figure rising to 40% in the London market. Industry bodies such as the Civil Engineering Contractors Association, the Federation of Master Builders, the Association for Consultancy and Engineering, the Construction Products Association, and Build UK have recently written an open letter urging the Prime Minister and MPs to agree a deal with the European Union. Should the United Kingdom exit without a deal, overall construction output could fall by 4% in 2019, with falls of at least 10% expected in the commercial and residential construction markets.


Labour is the issue ‘keeping operators awake at night’, according to Brian Berry, chief executive of the Federation of Master Builders. The government’s proposed post-Brexit migration scheme classifies the NVQ level 2-qualified employees required by the industry as unskilled, and therefore subject to immigration limits. The sector is already facing a skills shortage and has an ageing domestic workforce, and operators have been strident in calling for the government to reassess its migration plan after the United Kingdom leaves the European Union and loses the free movement of labour.


Prevailing uncertainty has already hit sector confidence as Brexit has drawn nearer. The IHS Markit construction purchasing managers’ index fell to 49.5 in February, down from 50.6 the previous month, and below the expected figure of 50.3. This placed the sector into decline, and was the worst monthly performance since the ‘Beast from the East’ hit in March 2018. The threat of a no-deal Brexit has discouraged investors from commencing projects, and funding for construction projects obtained through EU mechanisms such as the European Investment Bank have also slipped. Many industry stakeholders have called on the government to confirm that such schemes will be replaced in full by domestic frameworks, as they would be void under a no-deal scenario.

 

For a printable pdf of this Executive Summary, please click here.

For a printable pdf of the the full report, please click here.