UK construction industry challenges

With Brexit, the process of the UK's withdrawal from the EU, causing widespread uncertainty for the UK economy, the results of the country's general election last week have added an extra level of instability for the construction industry.

Despite concerns over the Brexit effect and buoyed by better-than-expected GDP growth, the UK government has been pressing ahead with a number of significant infrastructure projects, including the first nuclear reactor to be built in Britain in two decades, a third runway at London's Heathrow airport and the High Speed 2 railway which is due to start construction in 2017. Housebuilding, meanwhile, remains the key engine of construction growth. In terms of cement volume trends, in 2015 UK cement demand rose by 12.4 per cent to 13.07Mt and is expected to have increased by a further 2.9 per cent in 2016.

However, the results of last week's general election which returned Theresa May's Conservative Party with most seats but no overall majority have created more uncertainty and speculation for construction activity as a whole. Expressing its disappointment at the outcome, Dr Diana Montgomery, chief executive of the Construction Products Association (CPA), commented:  “From a business perspective, this is frustrating. We need certainty and clarity in order to address the serious challenges and opportunities facing UK construction over the next few years.  First and foremost of which is the prompt delivery of the government’s National Infrastructure and Construction Pipeline, which if delivered we believe will attract investment in UK-based manufacturing. Government also has a leadership role in fixing its own procurement by using its ‘balanced scorecard’ approach to procure best value for government projects and using policy levers to address skills and housing shortages and the costs of energy and business rates to business. It’s still early days and we will, of course, be ready to work with the new government and help find solutions, but I fear we’re now facing a period of greater instability at a critical time for our industry.”

Meanwhile, Brexit dominated discussions at the Mineral Products Association (MPA)'s annual meeting held in London the day before the snap election, highlighting the challenges of adapting to change and the need for greater collaboration. MPA Chairman, Simon Vivian, in his opening address, confirmed that: "our industry continues to be ready to support delivery of Government's agenda for developing and improving the built environment in post-Brexit Britain. Consequently, our industry's attention is focussed upon the need for confidence-boosting measures which encourage investment to maintain growth in the economy and improved productivity. A healthy and prosperous economy underpins our ability to meet the needs of both the private and public sector."

In the MPA's updated Brexit priorities for the mineral products industry briefing, the trade association outlined the key points that the government should take into account as it begins the process of withdrawing the UK from the EU. Among them, the MPA also stresses that the delivery of infrastructure investment, as outlined by the Government Infrastructure Pipeline and higher housing activity are essential elements of building a more resilient and productive economy. "There remains strong business concerns that existing infrastructure plans, while positive, are heavily backloaded towards and beyond 2020, but the opportunity existis to accelerate smaller scale transport projects and programmes over the next 12/18 months and boost growth." The MPA has also called for the government to maximise access to markets to avoid the potential knock-on effects on the domestic construction and mineral product industries. Furthermore, with the mineral products industry currently employing significant numbers of EU citizens, the ultimate shape of the deal with the EU matters as it will also define access to both "skilled and less skilled labour".

Latest MPA figures reveal that construction market demand for mineral products was higher in 1Q17 compared with the previous quarter, providing some evidence of continued impetus in construction activity at the start of the year and sustained level of construction activity on the ground. However, concerns remain about the medium-term market outlook and the potential for lower growth, with the MPA stressing that: "Post-election, Government's policy development and implementation, as well as swift and constructive progress in the Brexit negotiations, will be central to the future health of the UK economy, the construction sector and ultimately, the mineral products sector."