23rd January 2019

What Will 2019 Hold for the UK Construction Industry?

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2019 is set to be a critical year for the UK economy, with all eyes on the EU exit date of 29th March. At the time of writing, we don’t know whether the UK will be leaving the EU with or without a deal, but what happens on this date will affect the economy, and the construction industry, for the rest of 2019 and beyond. With this outcome so hard to predict, it’s difficult to forecast what 2019 will have in store - but we’ll give it our best shot!

 

Slow growth?

Latest predictions estimate that the UK’s construction sector will grow by 0.3% in 2019, a downward revision from their previous forecast of 2.3%. The CPA expect private housing output to rise 2%, infrastructure output to rise 8.7%, but commercial output to fall by 20%. This significant fall in office construction  is down to Brexit uncertainty, the CPA reports.

 

Large infrastructure projects

The government has boasted that the current infrastructure pipeline is worth £600 billion over the next decade, with 700 projects, programmes and planned investments in the works. This includes a £28 billion national roads fund, the planned East West railway line, and the biggest offshore wind farm in the world, Hornsea Wind Farm.

However, large ongoing projects have been beset by delays and budget problems - most notably Crossrail, HS2, and Hinkley Point C. Crossrail has received three funding boosts in 2018 alone, and is now not expected to be completed until late 2019 - the line had been due to open in December 2018. Sir Terry Morgan, chairman of both HS2 and Crossrail, recently resigned after a row over delays and spiralling costs. Could 2019 be the year that these projects shake off their problems?

 

Legislation changes

Brexit aside, there are some other small but significant legislation changes that’ll affect construction SMEs in 2019. First up in April is Making Tax Digital, which will require the vast majority of VAT registered businesses to submit VAT returns directly to HMRC through accounting software (or bridging software), rather than submitting figures in manually. Ask your accounting software providers if they’re MTD ready, and understand the new submission requirements before April 2019.

For construction companies who supply to or buy from other construction companies, the VAT reverse charge system which comes into effect in October 2019 will be another significant change. Instead of suppliers charging VAT, it’s the customer who must account for it. This new measure is to prevent ‘missing trader’ fraud where suppliers pocket VAT and ‘disappear’. This measure not only requires changes to your accounting processes - you also need to ensure your cash flow is secure enough to withstand the loss of VAT.

 

Modular housing goes mainstream

Modular housing is increasingly being heralded as the solution to the UK’s housing shortage, with the government backing the industry and more and more firms announcing investments in modular home production. After all, this type of construction reduces the need for labour, cuts building time, and presents more opportunities to introduce new technologies into the construction process - three issues the industry has struggled with.

While this new generation of prefab housing will go mainstream in 2019, we expect to see something of a backlash to this trend, as it doesn’t resolve issues with land and planning permission. After all, the limiting factor in housebuilding isn’t always construction capacity - it’s far more complicated than that in many areas.

 

Summary

It could be a tough year ahead for construction, but there remain plenty of opportunities for the industry to grab. Once we know how Brexit will be resolved, expect industry confidence to grow, and investment in technologies and new processes to receive a boost.

In the meantime, maintaining complete financial visibility over all aspects of your business will give you the resilience you need to navigate the uncertainty the construction sector faces.


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