UK construction hits a wall

The sector experienced a 20% fall in contract value in July, a month that saw the government send mixed messages regarding infrastructure investment.

The first full month of post-Brexit construction data shows the UK infrastructure sector as the hardest hit, according to official data. 

The value of infrastructure construction contracts slumped 20 percent to £1.5 billion ($2 billion; €1.7 billion), according to Barbour ABI, the consultancy that supplies figures to the Office for National Statistics.

New orders were down to £5.8 billion in July, a month-on-month drop of £400 million.

“This is unsurprising given the uncertainty in the economy,” said Michael Dall, lead economist at Barbour ABI.

“However, it is the infrastructure sector which has performed particularly poorly this month and with the change in narrative from the current government, it puts more emphasis on any fiscal stimulus that they may be planning to make.”

The data comes after a month that saw the government come up with both encouraging announcements and perplexing decisions, at least seen from infrastructure investors' standpoint.

The UK Prime Minister, Chancellor and other senior government members have signalled that they may potentially be open to borrowing to finance long-term investments in infrastructure.

Their words have echoed arguments advanced by major domestic developers, with Balfour Beatty chief executive Leo Quinn noting in July that “money is effectively free, so it's a good time for the government to be making long-term decisions on infrastructure”.

The government has also cleared the expansion of London City Airport, a development observers think was neither guaranteed nor insignificant. 

Yet the period also witnessed the government delay a decision on the £18 billion Hinkley Point C nuclear plant project, and the Mayor of London initiate a review of the £1 billion Silvertown Tunnel.

Manish Gupta, a partner and head of infrastructure corporate finance at EY, told Infrastructure Investor that the resulting political uncertainty may explain why part of the investor community seems to have defaulted in a “wait-and-see” attitude.

Barbour ABI noted that other sectors had performed better than infrastructure, with the value of contracts for commercial office construction jumping 22 percent last month compared to June.