The latest Markit/CIPS UK Construction PMI® report was released yesterday and showed that construction has had a bad month in the run up to the EU referendum. This, coupled with news that the pound has slid to a 31-year low after Brexit anxiety has caused a great deal of concern for industry professionals. However, with pledges being made by potential leaders of the conservative party to revitalise the industry to dampen Brexit impact, are things looking up for housing?
According to the report, June data signalled a return to falling output levels across the UK construction sector, led by a steep decline in residential building and a reduction in commercial work for the first time since May 2013. Reports from survey respondents widely linked the downturn in business activity to uncertainty ahead of the EU referendum (just over 80% of survey responses were received before 24th June). Heightened uncertainty also contributed to a further reduction in new invitations to tender, with the latest data pointing to the sharpest drop in new business volumes since December 2012. Meanwhile, softer demand conditions acted as a brake on staff recruitment in June and contributed to a drop in purchasing activity for the first time in just over three years.
Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI®, said: "Widespread delays to investment decisions and housing market jitters saw the UK construction sector experience its worst month for seven years in June. Construction firms are at the sharp end of domestic economic uncertainty and jolts to investor sentiment, so trading conditions were always going to be challenging in the run-up to the EU referendum. However, the extent and speed of the downturn in the face of political and economic uncertainty is a clear warning flag for the wider post-Brexit economic outlook.
"House building activity was worst affected by the uncertain business climate in June, very closely followed by commercial work. Civil engineering was the only stabilising influence, which underlines the need to shore up decision making on infrastructure projects and help offset any further loss of momentum across the wider construction sector.
"The vast majority of June’s survey responses were received ahead of the EU referendum, so the worry is that the ensuing political turmoil will hit construction spending decisions for some time to come. As a result, the latest figures raise the likelihood that the Bank of England will inject additional stimulus this summer in an attempt to dampen the short-term impact of Brexit uncertainty on the real economy."
Light at the end of the tunnel
Despite the uncertainty caused by Brexit and the jittery lead up to it, Conservative leadership hopeful Stephen Crabb has pledged to create a £100bn “Growing Britain Fund” to boost social housing, schools and infrastructure, should he become successor to PM David Cameron.
Stephen Crabb, who is currently work and pensions secretary, intends to issue up to £20bn of long-dated bonds per annum for five successive years in order to generate the impressive sum. “The cost of borrowing is incredibly low. Spending government money on infrastructure has therefore never been more affordable,” commented Stephen.
The proposal has received the seal of approval from Sajid Javid, Crabb’s would-be chancellor if he is successful in his Tory leadership bid. Javid added that the proposal could create “hundreds of thousands” of new jobs if it were implemented.
Former shadow housing minister Michael Gove, (who is also hopeful of becoming the next Conservative party leader) has highlighted the need to prioritise housing going forward. Gove said "We need a national ambition to build hundreds of thousands of new homes a year, both private and socially-rented — led by someone who will not take no for an answer and who will push for diggers in the ground and homes for all come what may.”
Whoever the next leader will be, the message from Whitehall seems bright and clear; investments will be made in the social housing sector, so that we can continue to tackle the housing crisis and get Britain building again.