War in Europe – how will the UK construction sector react?

We have been saddened and shocked by the unfolding events in Ukraine and our thoughts are with the people most directly affected by the conflict. As we found with other recent world events, such as Covid-19, there are many ramifications beyond those impacted personally, disrupting global supply chains. We have been thinking ahead to how the UK property and construction sector may be impacted and how we can respond to this latest shock.

Our departure from the EU came with a good deal of uncertainty. Some said it would impact significantly upon foreign investment in the UK. Others speculated that big business would depart and set up shop on the continent. Brexiteers predicted less red tape and a more open economy which in turn would attract greater, not less, inward investment. In short, no one was certain and uncertainty is plainly not good for business, especially in the world of property and construction where much of what gets built is constructed speculatively in anticipation of demand. Yet in the Southeast at least, Brexit doesn’t seem to have inflicted the damage that some were predicting.

Then came the pandemic with its daily news briefings, lockdowns, and the furloughing of over 11 million workers. Again great uncertainty with a reluctance to invest in new projects at least until there was a clear road map to recovery.  The Omicron variant was a potential disrupter but proved to be far less damaging than many had anticipated. This, coupled with the efficient rollout of vaccinations and boosters in the UK, meant that by the time we came back to work after the Christmas break things were looking decidedly more positive. A fact proven by a record month of new instructions for WWA followed by an even larger increase in February.  Then, Putin invaded Ukraine and global business was once again plunged into uncertainty.

Unlike the uncertainty over Brexit and Covid, the impact of this latest shock is far more predictable. Russian assets and cash is being seized making Russian-backed development a non-starter. International sanctions will, and already have caused huge rises in energy costs and energy is one of the largest components of materials manufacture. Significant increases in the supply cost of building materials and components can be guaranteed, and will therefore be passed on to the consumer. Ukraine is one of the breadbaskets of the world so expect hikes in the price of foodstuffs over coming months which in turn will lead to even greater inflation than recently predicted.

Investors will be extremely cautious over their property development portfolios where demand is uncertain and control on costs cannot be maintained.  New construction is likely to contract as a result. The state can help by targeting public spending on areas for growth including affordable and social housing, healthcare, education, and essential infrastructure. Notwithstanding the UK economy is reeling from massive borrowing during the pandemic, the scale of inflation we are likely to see in 2022 will, conversely, reduce the size of the deficit.

One consequence of the impending fuel crisis is that it might just speed up government policy towards greening the economy. 2050 to hit zero carbon was a woefully unambitious target but now perhaps we’ll see added impetus to cut carbon emissions and wean ourselves off fossil fuel.

It was looking much more positive as we entered 2022. Now it seems austerity will hit us once more – but for how long? That depends on how the war develops but it’s unlikely we’ll be cozying up to Russia any time soon. A small price to pay perhaps considering the suffering being inflicted upon the population of Ukraine, with whom our thoughts remain.