Uncertainty surrounding the outcome of the EU referendum appears to be taking its toll on the construction industry. The sector, which accounts for 7% of national GDP, reported a decline in orders during May for the first time since April 2013. The statistics were released in the closely-watched Markit/Cips report, which blamed the slump on “heightened uncertainty” regarding the UK’s economic outlook.

The report highlighted that residential and commercial construction, as well as civil engineering had all been affected. Many firms suggested that they were reluctant to place orders or begin contracts ahead of the referendum, with a third of respondents believing that the uncertainty has had an adverse effect on their business. Tim Moore, who is the Senior Economist at Markit and the author of the report said:
“May data signalled the worst month for commercial building since June 2013, while residential work and civil engineering activity both saw a renewed loss of momentum. Survey respondents noted that the forthcoming EU referendum has disrupted new order flows and the timing of client decision-making in particular. Heightened uncertainty and subdued general economic conditions in turn contributed to the first outright fall in new work received by construction firms for just over three years.”

More to the Slump than EU Referendum

However, whilst the report suggests that the EU referendum is one of the reasons behind the construction industry being “in the doldrums”, the slowdown goes beyond the upcoming vote. Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, told Wales Online that:
“Around one-third of construction firms reported that they had seen a detrimental impact on their business from uncertainty about the outcome of the referendum, with the rest reporting no significant effects. Even after a ‘Bremain’ vote, we doubt that the recovery in the construction sector will race away. The sector’s slowdown has reflected more than just Brexit risk. The official data clearly shows that public sector construction is being squeezed, while the revival in house-building has run into skilled labour shortages.”

The report did include some notes of positivity, with just over half of those surveyed expecting a rise in construction output over the next 12 months. However, in the short term, the industry appears to be holding its breath as we await the outcome of the vote on 23rd June.