Construction industry slumps as markets remain pessimistic

Industry Insight August 4th, 2016
Construction industry slumps as markets remain pessimistic

Arthur looks at the slowing construction industry and what it could mean for U.K. property.

As the U.K. waits with baited breath to see what the effects of Brexit will be, The Markit revealed that their construction purchasing managers’ index (PMI) dropped to 45.1 in July. Anything under 50 indicates a contraction in the market. This means that the construction industry slumped to a six-and-a-half year low.

Like most markets post-Brexit, it appears construction businesses are adopting a ‘wait and see’ approach, with nobody wanting to make the first move. However, this may be a mistake. Until the U.K. officially leaves the E.U., there is certainty about what rules and tariffs must be followed; afterwards, nobody knows. It may be a risk worth taking

Travis Perkins announced, in their second-quarter update, that demand for their products had dropped. They believed that the weakening of the construction industry was a direct result of the Brexit vote.

The weakening of the construction industry was accompanied by a drop in manufacturing. The U.K. manufacturing industry dropped by 48.2, compared to its E.U. counterpart, which grew to 52.4.

“Lies, Damned Lies and Statistics”

The famous quote from British Prime Minister Benjamin Disraeli sums up the situation quite well. Despite the apparent woe that has befallen the construction industry, the market has actually remained more buoyant than economists expected. Before PMI’s announcement, predictions had been as low as 44.

Furthermore, the Mineral Products Association stated that the figures they produced actually showed an increase in activity. Sales in baseline products were in fact up. For example, ready-mixed cement sales were up by 3.3% on the first quarter of 2016; compared to last year it was up by 6.5%.

What now?

The U.K. is already facing a housing crisis. Now, there is the possibility of that becoming worse as construction companies slow their investment. On top of that, a decrease in immigration could see a drop in the workforce available, with construction traditionally a staple employer of the migrant population.

Once again, it appears that whichever way you turn, there is another apocalyptical statistic. However, there is no real way of knowing what will happen. Many people are comparing the Brexit vote to the Financial Crisis. But, the two events are not the same. We are entering uncharted waters and the only way to find out what is on the horizon is to move forwards.

 

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