Steven Todd from Tayside-based EQ Chartered Accountants discusses the impact of uncertainty within the construction sector.

Latest forecasts highlight a mixed picture for the construction industry over the next two years due to the impacts of the uncertainty following the EU referendum.

Overall, construction activity is expected to remain broadly flat in 2017 and 2018, but this masks a more nuanced picture at the sector level with growth in infrastructure and education offsetting falls in activity in sectors such as commercial offices and industrial factories.

Surveys across the industry highlight that activity in the construction sector has been sustained post-referendum, primarily based upon work on projects that were signed in the 12-18 months before the referendum. Looking forward, projects in the pipeline mean that construction activity is likely to continue throughout the first half of 2017.

From the second half of 2017, however, there is likely to be a clear division between the fortunes of privately-funded construction sectors such as commercial offices and industrial factories where the current uncertainty is likely to have a major impact, and those that are largely unaffected by post-referendum uncertainty such as infrastructure and education which are either publicly-funded or in regulated sectors.

In construction sectors that are likely to be affected by the uncertainty, new investment has already fallen sharply but the lag between new contract awards and activity on the ground means that the weakening in sector output is likely to occur from the second half of 2017.

Private house building has not been affected by the uncertainty so far and is expected to rise by 2.0 per cent in 2016. It is anticipated to remain flat in 2017 before a 2.0 per cent fall in 2018 due to slower demand as UK economic growth and real wage growth both weaken considerably this year.

The slower real wage growth in 2017, driven by higher inflation due to the recent falls in Sterling, is also expected to lead to a decline in retail construction of 4.0 per cent in 2017 and 2.0 per cent in 2018.

With the upcoming Brexit negotiations, it is vital that the Government focuses on reducing uncertainty for the private sector, sustaining the housing sector and ensuring delivery of education construction and major infrastructure projects already in the pipeline. As we keep hearing in the Press, Britain is open for business, so it is vital that Government policy continues to reassure and encourage investment.