As the first country to leave the EU, we are perhaps ‘reluctant pioneers’ on a journey where none of us - including the rest of the EU countries - have a clue about how the final destination will look. The only thing that has become clear since the Brexit vote is that many of the ‘Leave’ promises and the threats from ‘Remainers’ haven’t yet and probably won’t come to fruition.
But where does this leave our trade sector, both during the leave process and then once we’ve got the flexibility to go it alone?
Navigating our way through Brexit
To be able to navigate this journey, we’ve got to first understand how reliant we are as a sector on the EU itself, in terms of three key areas: 1. The general economy and the construction industry 2. Our labour requirements 3. The materials we use
The general economy is faring well so far
Generally speaking, we seem to be doing quite well, despite the looming pressures of Brexit and a relatively poorly-performing EU. According to the Office of National Statistics, gross domestic product (GDP) has risen by 0.7% since the vote, while the International Monetary Fund increased its growth forecast to 2% for the year, saying the UK is proving “resilient in the aftermath of the referendum.”
In terms of the percentage of our exports that go to the EU, there are various estimates, ranging from 28% to just over 48%. That suggests it’s an important ‘customer’ for us, but we’re also an important customer of theirs, so a good deal is equally desirable for both sides and hopefully will be achieved.
The effect of Brexit on the construction industry
Looking specifically at the construction industry, most people turn to the latest Markit/CIPS UK Construction PMI to understand what might happen in the future. The latest data from them suggests, “Weaker housing activity growth weighs on the UK construction sector”. However, they believe that the drag from the housing slowdown is being balanced by success in civil engineering and work in the commercial sector.
That being said, the construction industry hasn’t emerged from the Brexit vote unscathed and it’s inevitable there will be problems to solve for companies in the sector going forward. For example, the shares of major house builders Berkeley, Bellway and Persimmon fell by between 21% and 28% on the day of the referendum, according to a Parliament Briefing, and have not recovered since.
But despite issues with shares, the number of residential new build property starts are up by 15% in the year to March 2017, versus the same period in 2016.
Economically, it looks like we are reasonably resilient to the leaving the EU so far.
Fulfilling our labour requirements after leaving the EU
From a labour perspective, though, we may have a problem moving forward, which may already have been felt by the trades industry, especially in London and the South East.
“…it’s important that we’re able to keep the migrant workers who are already in the UK - and attract more”
According to the Chief Executive of the Federation of Master Builders: “The UK construction industry has been heavily reliant on migrant workers from Europe for decades now – at present, 12% of British construction workers are of non-UK origin…It is now the Government’s responsibility to ensure that the free-flowing tap of migrant workers from Europe is not turned off”.
As such, it’s important that we’re able to keep the migrant workers who are already in the UK - and attract more, if the political parties’ promise of 1 million private and affordable residential homes and huge infrastructure projects such as HS2 and the Cambridge, Milton Keynes and Oxford corridor are to be delivered.
The only alternative to this is to try to persuade a mass of ‘home grown’ talent to work in the sector. As that is highly unlikely to be achievable in anything like the short term, it’s vital that barriers are not put in the way of companies employing the experts they need from whichever country provides a cost-effective solution.
Material availability and costs under Brexit
Another potential consequence of leaving the EU, similar to the labour issue, is the ability to import resources, tools and materials, and the model used to leave the EU could be critical here.
For example, even if we can find a way to remain in the Single Market, we may have to make new trade agreements, which could have either a positive or a negative impact on the construction industry. If we can’t get the deals we want, it could mean higher costs, which would have to be passed on to the customer. And that, in turn, may affect the ability to deliver contracts as currently agreed, if prices rise significantly.
“Overall, the companies that survive the Brexit process will do so in the same way they survived the credit crunch.”
A study by Biz in 2010 found that 64% of building materials were imported from the EU, and a similar amount were exported, so the final agreement we make will certainly have a significant impact. And it’s likely to be one of three scenarios: a rise in costs, a shortage of materials or, if all goes well, we may be able to maintain the status quo.
Overall, the companies that survive the Brexit process will do so in the same way they survived the credit crunch. It will require a strong belief in the business and its staff, great problem-solving skills and the development of a reputation for delivering - whatever the EU or the world throws at us!
For more on Brexit and the trade sector, see how industry expert, Kate Faulkner views the impact of leaving the EU on DIY and Get Someone In (GSI).
Kate Faulkner is one of the UK’s leading property experts. Kate produces independent property prices and rent reports, working with forward thinking companies to educate and inform consumers on carrying out property projects successfully. Kate co-hosts LBC’s Property Hour, is a BBC5Live midnight expert and regularly appears on the BBC, ITV, in The Telegraph, writing blogs for magazines such as Period Ideas.