Brexit uncertainty has seemingly paralyzed parts of the UK economy and with the October 31st deadline fast approaching there is no clarity on how the eventual outcome will affect the Irish economy.
Many people across Ireland, including those of us in the construction and property industry, have a cautious eye on the drama that has been unfolding in neighboring Great Britain as the Brexit deadline quickly approaches.
After a series of delays, the European Union has set a firm Brexit deadline for October 31st. With this deadline fast approaching and a tumultuous couple of weeks in UK politics, the final outcome while still unknown seems to be increasingly headed in a negative direction.
Brexit fear factor hits UK construction sector
Industry news coming out of the UK reports that construction activity has dropped to lows last seen in 2009. Builders have attributed this fall in construction levels to Brexit uncertainty, especially in the commercial sector where building projects have been slashed and work has been stalled.
According to the IHS Markit/Cips UK construction PMI survey, the volume of new orders is down significantly for the fifth consecutive month. Delayed decision-making appears to have provoked this state of ‘limbo’ in the construction sector. Industry representatives fear that this general decline is likely to continue with figures from September expected to be ‘more discouraging’ than those that have been reported in recent months.
With frustrations running high, even with a last-minute Brexit deal, a revival of the industry before the end of the year may not be an achievable target. This could prove to be disastrous to certain sectors of the industry and it will inevitably lead to the failure of several small building firms already operating on tight margins.
Preempting contagion in the Irish economy
While the world waits for a resolution in the UK, here in Ireland, the property and construction industries are simultaneously keeping one eye on Brexit and the other on the government’s Budget 2020. The Finance Minister has the burdensome task of trying to preempt the Brexit fallout in the Irish economy through his budget allocation due on October 8th without knowing what will happen on October 31st and how substantially it will affect the different sectors of the Irish economy. Shares in Irish banks have already fallen to their weakest level in almost six years, an early sign of investor worries of possible Brexit contagion in the Irish economy.
Beyond the challenge of not knowing for certain which sectors of the Irish economy will need the most financial protections in respect to Brexit, economic analysts at firms such as PwC have forecast a budget appropriates ‘very similar to last year’ with added positive measures to ensure that people’s incomes are aligned with inflation increases.
Budget 2020 Predictions
There were vague promises early this year that the 3% surcharge on self-employed people earning more than €100,000 would be rolled back but it seems unlikely that this will be incorporated into the new budget.
One aspect that we at Lotus Group Investments and others in the market are closely watching is what will happen with the Help-to-Buy scheme that is set to expire at the end of this year. The success of the program makes it increasingly likely that the scheme will be retained, extended or even replaced with a similar supply-side initiative, though this prediction cannot be taken for granted. Some have speculated that a possible change to the current Help-to-Buy scheme is that the threshold for eligibility based on property value could be reduced from the current limit of €500,000.
The public and media scrutiny over cuckoo funds and the private rented sector could encourage measures within the budge that incentivize smaller landlords back into the marketplace. The increase of the commercial stamp duty raised to 6% in Budget 2018 is unlikely to see a further increase. Now that all the pre-Budget submissions have been made, all that those of us in the industry to do is wait and see where the chips will fall on Budget Day.