Recent surveys in the construction sector have warned about an impending slowdown. The RICS and the purchasing managers Markit/CIPS survey have both warned about a loss of confidence following on from the Brexit decision. SpecFinish takes a look at how Brexit could affect the finishes and interiors sector. Steve Menary reports.
“There was a slow-down in decision making and feedback relating to Brexit. Many in business felt we would not leave,” said Tom McLoughlin, chief executive officer at MACS Plasterboard Systems.
That has been reflected across the wider fit-out sector. “People have had projects put on hold and we will see that for some time,” commented David Frise, chief executive of FIS, which held its first post-Brexit briefing to more than 30 members last month. Three key issues emerged: labour shortages, technical standards and whether the market will go into recession.
“We follow European standards,” added Mr Frise. “There will be less regulation, but it’s about which ones we want to get rid of. The construction industry was heading into recession anyway. To what extent that was due to people waiting and seeing what happened with the vote, I don’t know. The biggest problem is uncertainty.”
In the short term, uncertainty is proving unsettling, but not everyone in the sector is concerned.
Even before new prime minister Theresa May commented that Brexit talks will not start until at least next year, Angela Mansell, operations director at specialist contractor Mansell Finishes, said she was “quite calm and collected”. She added: “I don’t think Brexit will ever happen. It will take a brave person to invoke Article 50. Theresa May won’t.”
Mrs May’s comments on 20 July were aimed at providing reassurance and came after pleas from numerous trade bodies, including main contractors’ trade body Build UK. Chief executive Suzannah Nichol MBE said: “There will be plenty of discussion about what may or may not happen even before the UK formally gives notice to the EU. The priority will be to deal with the short-term issue of stability and confidence in the market, as the uncertainty is already leading to fluctuations in the cost of materials and concern over the future construction workload.”
Ms Mansell added: “We have seen metal increases but I don’t know if it was Brexit or the whole issue around Tata and what’s going on in China. From what I know, a lot of plasterboard and ceiling tiles come from Eastern Europe. It’s all imported and that will mean prices will go up.”
Mr Frise said that concerns over costs, in particular steel prices, were also aired at the FIS members’ briefing. The price rises did, however, precede the Brexit vote and costs are being exacerbated by the subsequent weakness in the pound.
Mr McLoughlin added: “Material prices were already increasing prior to Brexit – about 20 to 25 per cent higher – and the exchange rates at the moment are not in our favour.”
Professor Noble Francis, economics director at the Construction Products Association (CPA) and visiting professor at the University of Westminster, commented: “The fall in the pound will obviously increase import costs but the majority of cost inflation in construction currently is due to labour cost rises, especially in housing and commercial in London and the South East.”
The impact on the workforce is hard to gauge. Some in the industry believe that there may be a special status granted to the construction industry, which would be particularly hard-hit by draconian new laws.
MACS Plasterboard Systems has no European Union nationals on its payroll, but more than 60 per cent of the subcontract workforce comes from Eastern Europe – sometimes more. Sending those workers home would have an impact right down the supply chain to the clients commissioning work.
“Higher labour costs would occur because the fewer workers could demand higher wages,” explained Mr McLoughlin, adding: “At the moment, there does not appear to be an undue amount of angst among those workers, worrying about their future here in the UK, many of whom have been working in Britain for over a decade.”
Ms Mansell is equally calm about the impact of immigration and expects Brexit to produce a converse impact on workloads and labour. “People are holding off on starting work but really they should be placing their orders now to get a current, fixed price,” she added. “If anything, I think immigration will increase in the short term as people from Eastern Europe will come here before any decisions are made.”
Ms Mansell questions just what ‘quality’ means in the sector even now, and this is echoed by Build UK.
Ms Nichol said: “Employers have focused on the need to retain a source of skilled labour and on this issue we now have the opportunity to determine what ‘good’ looks like – the challenge will be how we continue to employ EU nationals in addition to fixing the training system so we also bring through a home-grown workforce.”
Build UK has been reassured by the new prime minister’s comments and this has reverberated down the supply chain, but FIS wants a rapid clarification on the Apprenticeships Levy.
Mr Frise commented: “I can see why they delayed the decision, but a lot depends on the Apprenticeships Levy. The quicker we get clarification, the quicker we can plan a strategy.
“It’s easier to see the negatives than the opportunities, but there must be opportunities. It’s just about getting to grips with what they are.”
The finishes and interiors sector typically feels the slowdown last, but as normality returns and the uncertainty slowly begins to dissipate, there are tentatively positive signs.
Mr McLoughlin concluded: “Projects that had started and had proceeded through the necessary stages of planning are still happening. Theresa May’s comments will certainly make construction companies feel more comfortable and push on with the building of required homes. There is a feeling that confidence is coming back.”