The limited impact of Brexit on construction and the residential sector

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With positive figures observed in construction output, as well as promising residential trends in regional cities, Brexit seems to have had a minor impact since the Referendum in June 2016. In the case that a ‘no deal’ Brexit scenario is avoided, future predictions also remain optimistic.

According to the latest Chartered Institute of Purchasing and Supply (CIPS) construction Purchasing Manager’s Index (PMI), there was a solid expansion of UK construction output in November, with the index score at 53.4, up from 53.2 in October. This represents the strongest growth rate since July.

There was also a reported growth of new work in the industry, with rising client demand creating job at the fastest rate since December 2015. With the latest rise in house building activity being the strongest in three months, the residential sector boasted the fastest growth of construction work in November. Furthermore, there were sustained increases observed in commercial work and civil engineering activity.

The optimistic results discussed above are somewhat in dissonance with business confidence levels depicted in the IHS Markit survey results. Business confidence remained relatively subdued, due to Brexit-related concerns weighing on the respondents’ growth projections regarding the next 12 months, despite having slightly picked up from October’s recent low.

This was especially noticeable for the commercial property sector, as the UK’s professional services and financial companies have been reluctant to commit to new office-building programmes without having clear information on the UK’s final trading relationship with the EU. Nonetheless, Samuel Tombs, chief UK economist for Pantheon Macroeconomics has commented that “2019 has the potential to be a great year for the construction sector, provided a no-deal Brexit is avoided”.

A different report by Hometrack, is pointing in the similar direction; it suggests that the impact of the Brexit decision taken on June 2016 has been limited, with six of the UK’s largest cities recording year on year growth figures over 6%. This includes the following: Leicester up 7.7%, Edinburgh up 7.4%, Manchester up 6.3%, Birmingham up 6.2%, Nottingham up 6.1% and Liverpool up 6%.

The discount between the asking and achieved prices continues to narrow across regional cities, meanwhile sales volumes continue to keep pace with new supply, in turn, supporting price growth. Birmingham, Edinburgh and Manchester have all registered house price growth of 15% since the Referendum vote, which is almost three times the growth in average earnings.

On the other hand, London has not enjoyed the same market conditions, given the registered year on year fall in house prices of 0.4%. However, this is not seen as a direct result of Brexit uncertainty, with other important factors, such as stretched affordability, multiple tax changes and new mortgage regulation, significantly subduing demand and subsequently reducing prices in London.

With data showing that Brexit uncertainty has had a very limited direct impact on the housing market and construction figures, market leaders expect trends to continue in the same direction until the outlook becomes clearer. This comes as reassuring news for both investors and developers, who face decisions regarding the timing of projects and their subsequent success. This is especially good news for those working with the residential sector.

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