FMB warns of post-Brexit impact on Scottish construction sector

Gordon Nelson
Gordon Nelson

Scottish construction SMEs boomed during the second quarter of 2016 but there are real concerns regarding the potential impact of Brexit on the Scottish construction industry, the Federation of Master Builders (FMB) has warned.

A survey by membership body revealed that construction activity has improved for its members in Scotland. Based on a composite indicator of current and expected workload, and business inquiries the poll found that a jump of 15 percentage points took Scotland’s net balance to +21, the highest reading since Q4 2007.

Around 12 per cent of weighted responses to the FMB’s State of Trade Survey results for Q2 2016 were negative, down from 20 per cent, while the share of weighted responses which were positive went up to 33 per cent from 26 per cent. The majority of weighted responses (55 per cent) were neutral, marginally up on the 54 per cent recorded in the previous quarter.

However, the FMB said that the survey covered the period before the EU referendum, and looking forward it had concerns about material price inflation due to the plummeting pound.

Brian Berry, chief executive of the FMB, said: “Following the EU referendum, the plummeting value of sterling has further complicated an already difficult situation for small construction firms. Even prior to the referendum result, nearly two in three bosses were anticipating rising material costs, on which there has been intense pressure over the past couple of years, as demand for projects has picked up again. With the dramatic fall in currency value however, we’re concerned that the trend towards price inflation will gather pace. We’ve already heard accounts of timber and brick costs rising, and a number of sources have said that even steel prices have risen by 8 per cent since the decision was made to leave the EU.”

Detailing the impact of the Brexit vote could have on Scottish construction sector activity, FMB Scotland director Gordon Nelson said: “The referendum result was not widely foreseen, and will undoubtedly impact upon business and consumer sentiment over the second half of this year.

“Scottish construction SMEs (small and medium-sized enterprises) are in a much stronger place to deal with any uncertainty generated by Brexit than they were a few years ago, but will be concerned that the hard-earned gains they’ve made will be jeopardised by retrenching consumers who may put off making significant investments in the short term.”

Mr Nelson called on the Scottish Government to “provide a clear blueprint detailing what steps it will take to ward off any potential economic downturn”.

He claimed there was a need for a “renewed focus on improving public procurement processes for smaller firms” so they could benefit to a greater extent from public spending. He voiced a belief that heavy spending by the Scottish Government on housing and infrastructure in the past few years had not “filtered through enough” to SMEs.

Mr Nelson flagged particular weakness in the construction sector in Aberdeenshire, which has seen its economy hit hard by the oil and gas sector’s woes.

He said: “The challenges the area are facing as a result of the oil industry flagging have been well documented, but these industry-specific difficulties are starting to have a pronounced effect on the construction sector in the area, for both firms linked to the energy sector and also those reliant on homeowner work.”

Mr Nelson noted that, unlike larger firms, SMEs in the Aberdeenshire construction sector were “unable to simply refocus their energies elsewhere”.

He called on the Scottish Government to consider how it can support such firms through publicly-funded building programmes for which they can bid.

Mr Nelson added: “Otherwise, these construction SMEs may go to the wall and exacerbate an already difficult situation within the local economy.”

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