South East: Construction workloads hit by uncertainty

Workloads have slowed across all sectors of the construction industry in the South East as economic uncertainty delays investment, according to the Q2 2017 UK RICS Construction and Infrastructure Market Survey. Anecdotal evidence from respondents suggests that uncertainty regarding Brexit is weighing on investment decisions, alongside the political turmoil generated from last month’s general election. 

After a positive picture in the Q1 survey with the growth in workloads accelerating at its strongest pace since the referendum, there has been a slowing in Q2 2017 with public non-housing and the private industrial sectors seeing the most significant easing in activity in the region. 

Elsewhere in the South East, activity in the private commercial, infrastructure and private housing subsectors exhibit a modest pace of growth having eased since the Q1 results. Although the pace of growth in total workloads has slowed, it is still rising, with 12% more respondents in the South East reporting an increase (down from +22% recorded in the previous quarter). Expectations for the next 12 months also remain relatively positive, although profit margins are expected to decline for the first time in five years. 

South East infrastructure workloads in Q2 2017 have moderated as well, with roads, communications and harbours expected to see the strongest growth in output over the coming 12 months.  

The only sector that experienced a contraction in workloads were private industrials with 2% more respondents seeing a decline rather than rise, down from a net balance of +14% in the prior quarter. 

The more uncertain outlook for the economy as a whole has led to a less optimistic outlook for the sector over the year ahead; even so, 42% more contributors in the South East expect activity to rise rather than fall. This is down from 49% the previous quarter. Meanwhile, hiring expectations improved modestly with 33% more contributors in the region expecting a rise rather than fall, compared with 30% in Q1 2017.  

Nationally, financial constraints are reported to be by far the most significant impediment to building activity, and with a net balance of 79% (from 70% in Q1) is the highest reading in four years. Economic uncertainty driven largely by Brexit and the subsequent election result was identified as the primary cause of the constraint. Difficulties with access to bank finance and credit, along with cash flow and liquidity challenges, were the second and third most frequently cited reasons, respectively. 

Despite the slowdown in growth, skills shortages persist with 55% of contributors nationally reporting them as a constraint on growth. After having eased in 2016, the intensification of labour shortages appears to be biting once more. The lack of quantity surveyors and bricklayers in the South East appears to be particularly acute, but the shortfall extends to other construction professionals as well.