The impact of Brexit on construction sector laid bare

Our recent analysis of Government data found that the Brexit combination of a construction skills drought and soaring material import costs could cost the UK construction sector £570m.

Cost of materials

UK construction relies heavily on imports, with 62% of building components and materials coming from the EU – equating to a net total of £5.7 billion, up from £4.9 billion in 2015. At the same time, costs are rising. The construction materials price index increased 5.8% on the year in January – an unprecedented growth which has seen the cost of net imports from the EU rise to the highest level since 2011, and up a huge 15.3% annually.

In light of this, construction companies reported the second-fastest rise in input costs in February 2017 since April 2008 – largely driven by the falling pound – with some firms anecdotally reporting a 20% price rise on some materials. If the cost of EU imports rises by just 10%, the cost to construction will be a staggering £570m.

Rising costs won’t stop at imports. Changes in tariffs as a result of Brexit will also play a significant role – with research already suggesting EU exporters could face £12.9 billion in tariffs on goods coming to the UK.

The terms of Brexit are still far from being agreed, but construction firms are already reporting considerable increases in the costs of raw materials. The key economic and industry indicators show this situation is likely to continue. These heavy costs will be passed on to clients and will act as an additional disrupting factor to the sector.

The construction workforce

The UK also relies heavily on imported labour. The proportion of EU migrants in the construction sector rose from 3.65% to 7.03% between 2007 and 2014. If this trend continues, a significant 10.41% of UK construction will consist of workers from the EU by 2021.

Now that Theresa May has ruled out the UK’s membership of the single market, the flow of migrant workers looks uncertain. This is on top of a skills crisis within the UK that is already reaching breaking point, as our research found that an existing lack of workers with the necessary skill set is negatively affecting the quality of projects.

Since the financial crash in 2008, the UK construction sector has become increasingly reliant on talent from the European Union, and EU migrants now comprise around 7% of the construction sector workforce.

In light of these threats it is critical that the Government seeks to address the uncertainty thrown up by Brexit, to ensure the continued delivery of a strong, well-connected built environment that attracts inward investment.