If you cast your minds back to 24th June, you will recall that the UK found itself gripped by a mild state of panic and confusion. After all, the value of the pound sterling had plummeted to a 31-year low, while share prices also tumbled as the British electorate voted to leave the EU. Similarly, the manufacturing and construction sectors in Britain were expected to experience unbearably bleak futures after the so-called Brexit vote, especially as access to the single market became increasingly unlikely in the long-term.
Despite these overt portents of doom, however, the UK’s economy has managed to defy the odds and maintain its equilibrium during the third financial quarter. This is best embodied by the construction sector, which has superseded the experts’ forecasts and reversed much of the initial slump that took place in the wake of the referendum result.
How has the Construction Sector Defied the Odds?
While it is true that output in the sector fell for the third consecutive month in August, the pace of this decline has slowed considerably. To illustrate this, the construction PMI from Markit actually increased to 49.2 last month, which was considerably higher than the 45.9 figure recorded in July and the economists’ prediction of 46.1. Given this and the fact that anything over 50 is indicative of growth in the sector, the market is clearly performing in a far more robust manner than anyone anticipated.
The question that remains is how has this happened? In truth, there are numerous factors at play, not least a slower than projected decline in the demand for commercial construction. This has been underpinned by a revival in business and client confidence across Europe and the UK, as the economy has continued to showcase strength despite the volatility that has been caused by Brexit. Additionally, access to flexible financing and service providers like Touch Financial has enabled construction firms to cope with the initial fall-out from the referendum vote and successfully tender for work.
Of course, we must also consider the importance of perception in the current economy. More specifically, it is fair to surmise that the initial reaction to the Brexit vote was exaggerated, as while Britain’s decision to leave the UK will continue to cause uncertainty, the depreciation that took place in the first 24 hours after the announcement was always unlikely to be sustained. So as the initial clamour has died down, individual markets and sectors have slowly rebounded and triggered a move towards widespread stability.
What does this mean for the Long-term future of the Construction Sector?
Make no mistake; stability and consolidation are the key takeaways from the recent construction market figures. While the sector continues to move towards stabilisation and a (hopefully) sustained period of marginal growth, for example, normal service is unlikely to be resumed for the foreseeable future. In fact, we should not expect to see sustained growth levels until the government has outlined a viable plan for Britain’s exit from the EU, while continued delays in the triggering of Article 50 will also dampen the demand for planned development and commercial projects over time.