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UK Construction output slumps – useful reality check on complacency

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Such an abrupt reversal in construction sector output serves as a useful reality check for anyone tempted into complacency by the construction sector’s initial resilience. 

The industry may have absorbed the initial shock of the referendum result with barely a ripple, but the benign limbo could not last forever. However, sentiment in the sector remains strong. The latest PMI survey showed confidence had vaulted into positive territory, and on the front line we’re seeing a steady stream of new orders in both the property and infrastructure sectors.

Public sector spending on construction projects is creeping up, and the industry has been buoyed by the Prime Minister’s green light for the Hinkley Point C nuclear power station. The government’s renewed commitment to infrastructure projects is encouraging – both for the construction industry and the economy as a whole. Such long-term, strategic programmes are the least likely to be blown off course by Brexit concerns.

However in an industry that thrives on certainty, the post-referendum uncertainty is taking a toll. In the immediate term the weak Pound is leading to an increase in the cost of imported components and materials. Coupled with the long-term skills shortage, this upward pressure on material costs risks fuelling substantial price inflation.

While the property sector continues to be vibrant, with strong developer demand and competition among contractors, it is too early to assume that business as usual will carry on indefinitely. The construction industry is famously cyclical and well used to responding to shocks. So far it has taken the referendum result in its stride, but with Brexit set to be a lengthy process rather than an event, there is a long way to go yet.”

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