UK economy: Steadying the ship

So now we know! The result of the EU referendum has either stunned, deflated or cheered us. At the time of writing I do not know whether we are still in the European Union and thanking our lucky stars, or out of it and with head in hands, facing an uncertain future. Either way, the process by which we witnessed the good electorate coming to that decision over the past months has been both fascinating and scary in equal measure. Churchill (much quoted in this campaign) once said: “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.”

For those of us operating in the uncertain and stressful world of construction management, the referendum campaign period also coincided with the takeover of Sweett Group by WSP Parsons Brinckerhoff. The Sweett website still proclaimed proudly that they are an “independent” provider of services although clearly when we see their 600 staff absorbed into the ranks of the 35,000 people working for a large Canadian conglomerate completed next month, the term “independent” will, I assume, be quietly dropped. 

It is sad to see another UK-owned consultant fall. Post 2008, Sweett, like many of us, tried to develop the ability to stay strong in its domestic markets while simultaneously expanding the global footprint of the business against the backdrop of a calamitous worldwide financial slump.

Those of us who remain independent still need all the help we can get and therefore I suspect that historians will find it almost unbelievable that just when we were getting back to business as usual, post slump, our own government decides to inject fear and uncertainty back into the economy by committing political harakiri.

It’s like watching the crew of a super tanker fighting over the helm while the boat glides off course. It takes a long time to get a vessel like the UK economy back on track

Regardless of the referendum result, the process of conducting an EU vote has proved to be a totally unnecessary distraction that has caused the pause button to be pressed by clients and investors alike. I have found that even potential graduate recruits looking to join our industry have been thinking twice, all spooked by fear of an uncertain future.

Aukett, the UK’s only listed architect, has recently said that projects stalled by the referendum on the EU could take longer to get going again than predicted. It claimed that its results had been impacted with work slowing down as clients waited for an outcome and a number of them requesting Brexit clauses be inserted into contracts. Developer British Land has also reported a slowdown pre-vote and that the EU referendum affected occupier demand with signs of a slowdown in the last quarter. It was reported as saying that some large occupiers are delaying decisions to take space until after the upcoming EU referendum and that this delay was likely to get worse in the short term. Housebuilders have seen 10% knocked off their market values.

As if further evidence was needed, a macro survey of our whole sector by Markit/CIPS has reported that new construction orders declined for the first time in three years, in May, as clients put off work until after the EU referendum. According to the latest survey, output growth over the month slowed to its weakest rate for over three years. The index registered 51.2 in May, above the neutral 50 threshold which separates expansion from contraction but below the 52 level the previous month and well below the 54.2 registered in March. Around one-third of respondents said they had seen a detrimental impact on their business from uncertainty caused by the upcoming referendum. The survey found all three broad areas of construction activity were stuck in a low gear during May. Residential building work increased at one of its weakest rates since early 2013, while growth of commercial activity was the slowest for nearly three years. Civil engineering stagnated in May, which made it the worst performing sub-category for the second month running.

Has it all been worth it? We have seen the party of government totally dysfunctional, riven by strife and misery during the bad tempered and at times histrionic referendum debate. It’s like watching the crew of a super tanker fighting over the helm while the boat glides off course. It takes a long time to get a vessel like the UK economy back on track once it veers. You need a united crew to avoid the inevitable economic icebergs ahead. I only hope that regardless of whatever result you are either celebrating or decrying today we can resume business as soon as possible and that this whole period will eventually be filed under the heading of “unnecessary and unwanted self-inflicted wounds”.

Richard Steer is chairman of Gleeds Worldwide