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Dean Watson, Joint Managing Director at national property and construction consultancy Wakemans, says the uncertainties ushered in by a hung parliament could have a major impact on the health of the UK’s construction industry at a time when clarity and stability ahead of the all-important Brexit negotiations is vital.

While we wait for the dust to settle and come to terms with the result of the general election, a climate characterised by uncertainty is surely the least desirable outcome.  Since uncertainty may impact on a wide range of commercial investment decisions, the big question is, how long will it last?  More important, perhaps, is the extent to which it will it weaken the UK, putting the next government on the back foot as we plan for life post-Brexit.

One thing we know is that uncertainty spooks the financial markets, as rumours over the past week about a possible hung parliament caused sterling to slide. While currency devaluation may provide a welcome boost for manufacturing, making UK exports a more attractive proposition, the flip side is that it will push up prices. We can therefore expect to see a continued increase in the price of raw materials, especially metals, the vast majority of which are imported.

Profit margins will also take a hit and, as a result of a weaker pound, there is likely to be a lack of appetite for refurbishment let alone investment in new-build warehouses and factories.

The other main impact of currency devaluation is inflation, which is already making its presence felt in the wider economy and is likely to rise faster than earnings. The upshot is that consumers will rein in their spending. For the construction industry the knock-on effect of a fall in retail sales will manifest itself in a slow-down in retailer investment along with lower demand for housing.

As a result of demand from first time buyers and the success of Help to Buy equity loans, private housebuilding looked set to be a key driver of UK construction growth, rising by 7.2% between 2017 and 2019 according to the Construction Products Association.  However, with the Help to Buy scheme scheduled to be withdrawn in 2021, the housebuilding sector will be especially eager for the new government to act swiftly and provide the necessary stimulus for continued growth.

The optimists amongst us will argue that the election result may well usher in an era of more moderate politics, as some of the more radical manifesto proposals are jettisoned.  Recognition that the construction sector relies so heavily on EU labour, for example, may see the next government adopt a ‘softer’ approach to Brexit.  Instead of a focus on reducing net migration to the tens of thousands, the industry could benefit if the government is willing to work to maintain the benefits of membership of the single market. There is also the view that, in respect of fiscal policy, a more stimulative approach will now be adopted – leading to borrowing more and spending more.

Thanks to general agreement among the Conservatives and Labour that we need investment in major infrastructure projects and housing to fuel economic growth, it is unlikely that energy, rail and water infrastructure developments, including Hinckley Point C and HS2, will be derailed. Such consensus also suggests that the backing for regional growth hubs, enterprise partnerships and initiatives such as the Midlands Engine and Northern Powerhouse will not be withdrawn, which would spell good news for construction employment and likely funding for industry training.

Whatever the shape of the new government, it must be able to act swiftly and decisively.  Government is the biggest investor in UK construction, procuring around a third of annual output in 2016, so commitment to seeing through the aims of the National Infrastructure and Construction Pipeline is essential if we are to show the world that it is very much business as usual.

Ends

Pictured: Dean Watson


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