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UK builders bet on infrastructure spending from government

Thursday, August 25, 2016 - 06:56
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UK construction companies are urging the government to give the sector a boost after infrastructure spending plummeted following the country's vote to leave the European Union.

[LONDON] UK construction companies are urging the government to give the sector a boost after infrastructure spending plummeted following the country's vote to leave the European Union.

Hopes for a stimulus have lifted the share prices of builders like Balfour Beatty Plc and Carillion Plc, which plunged after the June 23 Brexit referendum. Carillion, whose shares slipped Wednesday as it reported flat first-half pretax profit, is up 34 per cent from its low after the vote, while Balfour Beatty has risen 46 per cent.

Carillion is lobbying UK authorities directly and via the Confederation of British Industry, calling for more state investment in big projects, chief executive officer Richard Howson said by phone.

He said he expected Prime Minister Theresa May's government to announce new spending in the autumn.

"I think it will be good news and there will be an increase in infrastructure investment," he said. "I can see a very busy decade between 2020 and 2030 in respect of infrastructure investment and delivery in the UK"

Construction companies stepped up their pitch after consulting firm Barbour ABI said this week that infrastructure spending fell 20 per cent in July. Ms May's move to delay a go-ahead for the UK's first new nuclear power plant in three decades, along with postponements of a decision on a new runway for London's Heathrow or Gatwick airport, has raised questions about the UK's commitment to infrastructure.

Economists Simon Wells and Liz Martins at HSBC expect the government to borrow as much as £50 billion (S$88 billion) to boost infrastructure spending.

"In the current environment, the case for public investment is compelling," Ms Martins and Mr Wells wrote in a report this week. The Bank of England's decision to lower interest rates this month means borrowing costs have dropped, and Ms May pledged an end to so-called austerity when she took over.

Carillion hopes it will benefit from rail and defense spending and the proposed airport expansion, among other projects, Mr Howson said.

Balfour Beatty, which this month reported a pretax loss of £21 million for the first half of the year, also said the impact of Brexit on construction companies will be determined by UK authorities' response.

"A lot will depend on the government's continued support for infrastructure investment," CEO Leo Quinn said in a phone interview a week ago.

Persimmon Plc CEO Jeff Fairburn told Bloomberg Television on Tuesday that the housing sector had been "well-supported by the government over recent years," including new measures to help first-time home buyers.

"Any further help from government in that regard will be welcomed," he said. The firm saw a slight slowdown going into the Brexit vote, the CEO added, but business since then has been "very robust".

The potential for further housing stimulus is growing, Whitman Howard Ltd analyst Scott Fulton said by e-mail. The Treasury could extend London's 40 per cent Help to Buy program to the rest of England and Wales or offer a stamp duty holiday, he said.

While building activity has slowed since the referendum, Brexit could worsen a shortage of skilled laborers if it restricts immigration from the EU, construction-company executives said. Persimmon said it already struggles with a dearth of workers with bricklaying skills. Carillion's Howson said the labour shortage in the UK was "absolutely critical" three years ago and could become problematic again.

"The main source of labour over the last 10 years has been eastern Europe," he said.

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