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UK construction industry:
Uncertainty versus growth

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Edoardo Pisciotta London 22/06/2018
The previous articles in the construction series, explored anachronism in the sector, the lack of innovation and productivity compared to other industries and possible solutions. In this last article, we will analyse the UK construction industry -- CEO is committed to the UK industry! 
 
As per the latest market research available (2016), the UK construction market is estimated to be worth $167.8 billion. It is anticipated to grow at a CAGR of 5.6% until 2021, reaching a value of $220.8 billion. The market is equally divided 50:50 between residential and non-residential projects (civil engineering works, i.e. hospitals, highways, etc.). The non-residential sector is dominated by few large companies that are the only players with a critical mass in terms of workforce and services to deliver such complex projects. On the other hand, the residential sector is more fragmented, where medium and small companies enjoy a significant share of the market. The relationship between suppliers and customers is quite peculiar. The supply of cement, steel, aluminium and other similar materials is typically concentrated and the market is commoditised. Suppliers, however, don't enjoy the bargaining power one would expect as customers are also relatively scarce. 
 
The main driver of growth in the industry was the residential sector. An increase in demand of residential property, sustained immigration and easy access to mortgages are the main reasons for this growth. In the non-residential sector growth has been more stagnant, although we expect this trend to change. In fact, the government is committed to reverse decades of low spending policy. Existing infrastructure needs to be repaired and new ones need to be built to support the economic growth of the UK. This is particularly true for areas of the country that have been neglected in the past, such as Wales and Northern England. One key example is the HS2, the high-speed line that will connect the Midlands to London in the 2020s.
 
The big question mark for the sector is in the Brexit negotiation. The outcome will have a huge impact on the future of the UK construction industry. One of the main points is the issue of labour; at the moment, there is a shortage of workers in construction as 17.7% of the construction workforce is not British. Paradoxically, in a historic moment when the government is ready to open the pursuit to stimulate the post-Brexit economy, there might not be enough capacity to build. The second main issue is the macroeconomic situation. The health of the construction sector is interconnected to that of the general economy; a decay of the latter will influence the former. A policy of hard Brexit that is unfriendly to businesses coupled with reduced immigration, could damage the growth prospects not just of the UK construction industry, but of the entire British economy.
 
Leaders of the UK construction industry must hope that the UK and the EU will find the best deal possible for the future prosperity of Britain.

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Collective Equity Ownership Ltd. does not offer activities of wealth management and does not provide financial advice or solicitation. CEO is the provider of CEO I LP, a small-scope alternative investment fund, domiciled in the United Kingdom, offered only to Professional Clients, as defined in COBS 3.5 by the Financial Conduct Authority.
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