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October 7, 2019updated 22 Oct 2019 3:22pm

Slump in UK commercial and industrial construction to continue under “no-deal” Brexit scenario

Based on an assumption of a “no-deal” Brexit in late 2019 or during 2020, GlobalData has revised downwards its growth projection to an average of 0.2% in 2019-2020.

Reflecting the recent upheaval in the UK’s political scene, GlobalData’s central forecast for the UK’s construction industry is no longer based on a relatively benign scenario of a managed exit from the EU under a withdrawal agreement.

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Assess the market with our Construction Risk Index (CRI)

The global construction industry is in the process of recovering from the unprecedented disruption caused by the COVID-19 pandemic, due largely to the policies enacted to contain the spread of the virus. Although recovery is underway, there are still major risks stemming from new waves of COVID-19 infections and the reintroduction of restrictions on economic activity. Nevertheless, GlobalData predicts global construction output to grow by 5.3% this year. Global recovery in the construction industry will be far from uniform, and GlobalData’s Construction Risk Index (CRI) provides a standardized view of the country-level risks facing the construction industries in 92 major developed and emerging markets around the world. The CRI focuses on 4 key risk pillars, these being:
  • Financial risk
  • Political risk
  • Economic risk
  • Market risk
In the latest update of the CRI, the model has been adjusted so that certain elements of economic and market risk assess a country’s performance relative to its pre-Covid-19 setting, so to give the most accurate assessment. Check out our Construction Risk Index to get a complete view of the current market in the wake of COVID-19 disruptions, and best position yourself for the future.
by GlobalData
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In view of the weak position of the new prime minister, Boris Johnson, the polarisation of parliament, and the prospect of a snap election, the UK is set either to continue for a prolonged period of uncertainty over how and when the UK will leave the EU, or it will reach a point when a no-deal Brexit is carefully engineered. Despite recent legal moves to rule out such an outcome, a further move to force Prime Minister Boris Johnson to seek to delay the UK’s departure from the EU was dismissed by Lord Pentland in the Scottish courts.

Based on an assumption of a “no-deal” Brexit in late 2019 or during 2020, GlobalData has revised downwards its growth projection to an average of 0.2% in 2019-2020, down from the previous projection of 2.2% that was based on a Brexit process under an agreed deal with the EU. 

Although a hard Brexit would result in a clear-cut exit from the EU, there would be a new phase of uncertainty; investors would potentially put on hold new developments or cancel projects outright until there was some clarity on the UK’s future position outside of the EU under a no-deal scenario. 

The commercial sector would be the hardest hit, with reduced investment in new office, retail and hospitality buildings, particularly for speculative developments. The underlying drivers for construction work in residential and infrastructure construction would remain in place, but there is a downside risk given the potential for project costs to spike in the short term and contractors failing to deliver projects within budget. 

Reflecting investor uncertainty and concerns over the potential for a sharp economic downturn, new construction in the commercial and industrial sectors had plummeted on a year-on-year basis, down by 5.3% and 5.7% respectively, in January-July 2019.

Growth in these sectors is expected to remain negative until a clearer understanding emerges on the conditions under which the UK will leave the EU and how this is likely to affect trade and investment. The longer the current state of uncertainty persists, the greater the risk of existing projects in the pipeline being put on hold or cancelled. 

Although the UK construction industry’s output was still up by 2.2% year on year in January-July, the pace of growth has been slowing sharply in recent months, and leading indicators suggest there will be a continued decline in the coming quarters.

However, there is a clear divide in terms of the performance of key sectors. Overall infrastructure, for example, had expanded by 12.1% year on year in the first seven months of 2019, supported mainly by large-scale investments in public infrastructure projects through government flagship programs, such as the National Infrastructure Plan.

Total residential construction was up by 5.7% during this same period, but much of this growth was driven by public housing (up by 22.5%), with private housing projects posting growth of just 2.7%. 

 

Related Report:

Construction in the UK – Key Trends and Opportunities to 2023

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Free Report
img

Assess the market with our Construction Risk Index (CRI)

The global construction industry is in the process of recovering from the unprecedented disruption caused by the COVID-19 pandemic, due largely to the policies enacted to contain the spread of the virus. Although recovery is underway, there are still major risks stemming from new waves of COVID-19 infections and the reintroduction of restrictions on economic activity. Nevertheless, GlobalData predicts global construction output to grow by 5.3% this year. Global recovery in the construction industry will be far from uniform, and GlobalData’s Construction Risk Index (CRI) provides a standardized view of the country-level risks facing the construction industries in 92 major developed and emerging markets around the world. The CRI focuses on 4 key risk pillars, these being:
  • Financial risk
  • Political risk
  • Economic risk
  • Market risk
In the latest update of the CRI, the model has been adjusted so that certain elements of economic and market risk assess a country’s performance relative to its pre-Covid-19 setting, so to give the most accurate assessment. Check out our Construction Risk Index to get a complete view of the current market in the wake of COVID-19 disruptions, and best position yourself for the future.
by GlobalData
Enter your details here to receive your free Report.

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