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Brexit is an economist’s worst nightmare

29th June 2016

Home » Barbour ABI Blog » Brexit is an economist’s worst nightmare

Voting to leave the EU has made forecasting a difficult task

The political fallout from last week’s referendum result makes economic forecasting almost impossible – we have embarked on a huge change with no clear plan and so can only be vague about our future…

So it is Brexit then. A scenario most economists warned against has been voted for by the British public. I am not a fan of referendums as I wrote last week as it places a decision of enormous complexity in the hands of the electorate. It is a bad way to run a democracy as the subsequent fallout is unfortunately proving.

But what does all this mean for the construction industry? Pre-referendum I was fairly bullish about its prospects as government schemes such as Help to Buy continued to have a positive impact in the new housebuilding sector and increasing private sector confidence would boost the commercial construction sector. Today I am much less optimistic about the industry’s immediate prospects, which has as much to do with the political fallout as the actual result of the referendum.

Last year, in the run up to the general election, when all parties had vastly different approaches to housebuilding there was a notable drop in construction contract awards in the residential sector. This lasted until a few months after the election when housebuilders re-aligned to the new trading environment. That was just one election causing firms to put a brake on expansion plans. Now, it is a double whammy of domestic uncertainty and questions over the jurisdiction which construction firms will operate in. For these reasons I think the construction sector is, like the rest of the economy, on a downward trajectory. Clarity is needed, and quickly, to avoid a severe downturn in activity.

In addition to residential, the commercial sector will also be severely challenged in the upcoming months. Will investors take decisions to build new offices when they are not sure what the economy is going to look like once it is completed? This seems unlikely to me. And in infrastructure, the major projects such as HS2 and the Northern Powerhouse have very much been championed by the current prime minister and chancellor. Will this still be the case under a new administration?

I have been alarmed at how a stable economy and political system can unravel in such a short space of time. For this reason I expect a hiatus in activity over the next few months at least. The severity of the impact on the economy and the construction industry is unknown at the moment. All eyes will be on the statistics in the coming months for an answer.

I wish I could be more definitive but when we are about to embark on the biggest change to our economic system without a plan of any sorts, I hope you will forgive me for my vagueness.

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