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The impact of Coronavirus on the UK’s construction industry

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AFP 1Q833J

The Coronavirus pandemic has hit the world hard, with almost no industries or sectors going unaffected. Within the UK, it may be impossible to accurately assess the financial impact for months or even years, such is the uncertainty of the situation.

Some early numbers do offer an indication as to the challenges ahead, however. For example, the British Chambers of Commerce conducted a survey which found that 37% of companies were planning to furlough at least 75% of their workforce, while the UK’s Office for Budget Responsibility is predicting a 35% fall in real GDP for the second quarter.

Although it seems the UK is still in the relatively early stages of dealing with and responding to Covid-19, we are already seeing evidence of how the lockdown is affecting various industries, including construction. The sector itself seems divided on the best course of action, but what is not up for debate is that the impact has been significant.

According to the IHS Markit purchasing managers’ index, UK construction dropped from 52.6 to 39.3 between February and March – the lowest reading in more than a decade. The sector employs 2.4 million people and is responsible for approximately 6% of the UK’s economic output, but such a sharp decline serves as a stark warning following a period of recovery from the instability around Brexit.

“As measures to contain the Coronavirus pandemic were put in place across the UK, construction sites closed and builders lost their jobs on a frightening scale as overall activity fell to an extent not seen since April 2009,” said Chartered Institute of Procurement and Supply director Duncan Brock.

The long-term effects on the industry remain to be seen, but in the immediate future there are numerous challenges facing employers and employees alike.

The health and safety of all staff is paramount, of course, and the government’s social distancing guidelines mean vast numbers working on busy sites is not feasible. However, larger projects are set to make little progress with only skeleton staffon hand, which is likely to cause costly delays.

And those delays can be extended if the restrictions mean contractors cannot procure the materials they need to complete their developments. When the materials are coming from overseas, that adds an extra layer of complication to the conundrum, due to the changes in border and customs legislation.

As the industry experienced during the Brexit debate, uncertainty is not good for business and that is undoubtedly true in this case. The lack of clarity means clients and lenders are hesitant to give the green light to projects and companies could be left in limbo.

There are also the legal ramifications to consider – significant delays could cause disputes relating to contracts, the validity of construction insurance policies, force majeure provisions and all manner of other legislative wrangling. Like everyone else, the construction industry faces a myriad of challenges to overcome if it is to come out the other side of this crisis.

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