Brexit: UK construction sector heading for 'brick wall' as infrastructure projects suspended

Anxious international investors have already pushed the pause button on future UK infrastructure investments since last Friday's shock result

Ben Chu
Wednesday 29 June 2016 16:42 BST
Prime Minister David Cameron delivers a speech to workers at the new London Gateway container port which is under construction on the River Thames near Tilbury in Essex
Prime Minister David Cameron delivers a speech to workers at the new London Gateway container port which is under construction on the River Thames near Tilbury in Essex

The UK construction industry will slam into a “brick wall” early next year due to the massive uncertainty created by the Brexit vote, an industry source has warned.

A person in the sector, who contacted The Independent but did not want to be named, said that since the shock referendum result was announced last Friday morning anxious international investors have already pushed the pause button on future UK infrastructure investments.

“Construction projects that are underway are going to continue. It’s six to seven months down the line where a lot of projects are going on to ice,” said the source. “What you’ll find is the construction industry potentially running into a brick wall.”

“There’s a danger of a huge drop off. And if this is the situation for two years [the assumed time for the UK-EU divorce terms to be negotiated] that’s an awful long time for construction companies.”

The person said up to £20bn of planned infrastructure investment was at risk and that foreign sovereign wealth funds were among those pulling in their horns.

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A huge question mark hangs over high-profile projects such as a third runway for Heathrow and the Hinkley Point nuclear power station in Somerset.

But the source said there are also growing doubts about the future of less well-known operations such as the London Gateway port in Essex, operated by Dubai’s DP World, which opened in 2013 and is still only half complete.

“We’re hearing grave uncertainty [about it]” said the source. “That was built on the premise of large scale container ships from around the world using that as a point where these giant ships would dock and smaller ships would [transport the goods] straight into Europe. Now it looks like those smaller ships will have to find alternatives. They’re already talking about Hamburg, Amsterdam, etc,” he said.

The source said the new outbreak of uncertainty was likely to engulf many other ambitious planned construction projects in the UK, including the Atlantic Gateway transport hub in Manchester and Liverpool.

A spokesperson for London Gateway said: “Our ability to continue facilitating UK trade with the rest of the world remains unchanged, regardless of the UK’s membership of the EU. It is very much business as usual”.

The Atlantic Gateway did not immediately respond to requests for comment.

Already stagnating

The infrastructure construction sector was stagnating even before the Brexit vote, according the monthly Markit/CIPs survey for May, and a third of firms said the forthcoming referendum was already disrupting orders. Construction accounts for around 7 per cent of UK GDP and civil construction companies such as Balfour Beatty and Carillion have seen double digit falls in their share price since last Friday.

Another industry fear relates to airports, particularly if the UK ends up dropping out of the Open Skies Agreement, which allows any EU airline to fly between any two points in Europe. This could severely hamper the UK. “You could be looking at the closure of one of London’s airports,” the source suggested.

The Business Secretary Sajid Javid has been attempting to reassure businesses over the Brexit vote, but the CBI lobby group has criticised the absence of a post-Brexit plan from politicians.

A host of multinational firms from Japanese carmakers to American investment banks warned in advance of the referendum that they could skip investment in the UK if there was a Brexit.

But since the vote many have kept their counsel, waiting to see what new EU trade arrangements are proposed by the new government leadership. Some prominent Leave politicians, such as Boris Johnson, have suggested the UK will retain “access” to the EU single market, although this would entail the UK continuing to accept the free movement of people from Europe, which was one of the major sources of popular discontent towards the EU in the campaign.

The Chinese telecoms group Huawei has confirmed this week that it is proceeding with a £1bn investment in the UK. But the telecoms giant Vodafone, which employs 13,000 people in the UK, has warned it may now move its headquarters out of London.

US banks with European headquarters in London, such as Morgan Stanley, Goldman Sachs and JP Morgan, are waiting to see whether they are likely to retain “passporting” rights, post Brexit, which allows them to sell services across mainland Europe from the City of London. If not, they have signalled they would probably have to move offices, and jobs, to mainland Europe.

In another threat to the City, Francois Hollande, the French President, said this week the EU should insist the clearing of euro-denominated trades be done within the bloc. This could compel the London Stock Exchange’s LCH.Clearnet, which clears half of global interest rate swaps, to move out of London.

Analysts in Japan have said there is a 75 per cent chance Toyota and Honda could pull operations out of Britain if the country’s motor exports are hit with new EU tariffs. Ford has confirmed it may now cut jobs in the UK.

Around 80 per cent of UK manufactured cars are exported, with half going to other EU states. There are fears that UK manufactured cars could face a 10 per cent EU tariff.

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