Brexit and UK Heavy Building Materials

As the World Grapples With COVID-19, Brexit Has Been All but Forgotten. Yet the UK and EU Remain on a Timetable to Complete Negotiations on Their Future Relationship by the End of This Year.

Brexit uncertainty has hit investment in commercial construction. Other sectors, particularly infrastructure, have seen less impact. Source: Pexels

From today’s coronavirus-dominated perspective, it can be difficult to remember a time when headlines were made by anything else. For over three and a half years, however, Brexit was the major story in the UK, claiming the scalps of two prime ministers in a period of political uncertainty not experienced in this usually stable country for decades. And although the UK officially left on Jan. 31, 2020, the story is not yet over.

The UK and EU are now in a transition period to the end of 2020, during which a new trade agreement must be negotiated and agreed. Through the transition period, the UK remains a member of the EU single market and customs union and is subject to its rules and regulations. If no agreement is reached, trade between the EU and the UK will fall back onto basic World Trade Organization terms.

Brexit and COVID-19

This timetable was ambitious to begin with. The Institute of Government called negotiating and implementing a new trade agreement in 11 months “a huge task”, despite the UK Prime Minister Boris Johnson approaching the challenge with his trademark bullish optimism. The COVID-19 pandemic has turned it into a Herculean task. Both negotiating teams have been hit by the virus with negotiations now only possible via video link. Meanwhile, Johnson – the Brexit figurehead who made completing the process the main plank of his successful election campaign in December 2019 – was hospitalized by the virus in April 2020.

Yet the UK government is committed to ending the transition period as scheduled. In a April 14 press conference, the UK finance minister, Rishi Sunak, confirmed the timetable remained in place, while in a April 15 tweet, UK chief negotiator David Frost said “as we prepare for the next rounds of negotiations, I want to reiterate the Government’s position on the transition period created following our withdrawal from the EU. Transition ends on December 31st of this year. We will not ask to extend it. If the EU asks we will say no.”

This has been met by some scepticism from the industry, however. “In spite of the government’s comments that the Brexit transition period would end in December, it is highly likely that it will be extended into 2022 – and the Withdrawal Deal allows for a two-year extension. The government is currently too pre-occupied with the collapse in the construction industry and UK economy to negotiate complex trade deals,” Noble Francis, economics director of the Construction Products Association, told Rock Products in April.

“UK GDP is likely to fall around 10% this year,” Francis continued. “During the lockdown period, around 60% of construction activity is being lost. Overall, construction activity could fall around 20%-30% in 2020.”

“We are looking at a minimum drop of 60%-70% in the sales volumes already,” Aurelie Delannoy, director of economic affairs at the Mineral Products Association (MPA), whose members include the major heavy buildings materials suppliers, told Rock Products, also in April. “The biggest question is for how long, which is entirely dependent on how COVID-10 evolves.”

These comments have been echoed in statements from suppliers. According to Breedon Group, a major independent supplier of cement and aggregates, following stringent lockdown measures introduced in the UK on March 23, there was “an immediate and significant reduction in demand for our products, which we expect to continue until restrictions on movement are relaxed.” Similarly, Hanson UK, part of HeidelbergCement, has implemented a programme of temporary site closures and furloughing workers “due to the ongoing coronavirus pandemic and significant reduction in demand for our products.”

There is little doubt then that 2020 will be a historically challenging year because of COVID-19: the exact cost will be huge – but restrictions will at some point be lifted. Brexit however will permanently change the way the UK relates to the rest of the world. With this in mind, what impact will this change have on the UK buildings materials industry?

The Brexit Present: As Through a Glass, Darkly

Perhaps one of the key points to grasp at the beginning of any discussion of Brexit is that for much of the time under discussion, it had not happened. Even now, after the UK has officially left, the impact of withdrawal is not yet fully felt: the UK still enjoys free access to the EU markets, for example. The impact so far has therefore been a result of the political uncertainty caused by the Brexit vote and its complicated aftermath.

This political uncertainty was having a negative impact on the construction sector, long before COVID-19 wrought its chaos on the industry. Data from December 2019, pointed to an eighth consecutive month of contraction in construction activity, the longest period of falling business activity in the sector for almost a decade. Brexit uncertainty was one of “the most commonly cited factors highlighted by firms experiencing a fall in construction activity,” said Tim Moore, economics associate director at research company, IHS Markit, in his commentary on the data. And the contraction was expected to continue into 2020, even without the pandemic.

Similar sentiment was uncovered in a 2017 poll of members of the MPA that asked about the risks for business growth generated by Brexit. Investment uncertainty was the second most cited, behind a slowdown in the UK economy. “Economic and political uncertainty has had a direct impact on the construction sector, particularly on commercial work, which has been weakening since 2018,” the MPA, said in its September 2019, briefing.

“Work in the commercial sector is now in decline after three years of under-investment in building since the EU referendum, especially for office space in London,” the MPA’s Delannoy said back in February. “Investors are holding off big projects until they know more about the outcome of the Brexit process. As existing projects in the sector are finishing, there is little else of matching significance to replace them.” This was echoed by the Bank of England, which noted “commercial developers were cautious and shifting towards smaller, lower-risk projects.”


Imports of equipment from the EU could be affected by Brexit, opening up opportunities for suppliers from other regions. Source: Pexels

This Brexit-related risk has not gone away. The Bank of England was not all doom and gloom, however, in its pre-pandemic assessment of business sentiment, noting some hope that “output might be supported by increased government spending. […] Growth in private house building remained positive [and] there was stronger growth in publicly funded housing projects. Public spending on education had also supported construction growth.”

Moreover, and in spite of the uncertainty, until COVID-19 struck, demand had still been strong enough to keep UK suppliers of heavy building materials in brisk business. Take the example of cement. Despite maxing out its production capabilities, UK cement companies had been unable to cover domestic demand, with the UK importing about 3 million tonnes of cement alone, along with more than 1 million tonnes of other cementitious materials.

Recent investment in the industry also pointed to its underlying strength. Breedon Group is spending £178 million acquiring about 100 active operations around the UK from CEMEX, although completion of this deal is likely to be delayed by COVID-19. The acquisition follows a pattern of investments in the UK market by the company over recent years.

In addition, Thamesport Cement Ltd, with backing from France-based Cem’In’EU, is planning a modular cement grinding plant with capacity of up to 0.485 million tonnes per year, importing key raw materials, such as clinker, gypsum and limestone. Post-Brexit flexibility in where these imports are sourced from could well support this business model, opening up the UK market to cheaper clinker imports from e.g. Turkey or North Africa.

The Brexit Future: Through the Looking Glass

Beyond Brexit uncertainty, the shape of any future deal between the EU and UK is likely to bring some direct consequences on trade, skills and environmental policy. Of these, the impact on trade is likely to be limited, particularly when it comes to heavy building materials, as trade between the EU and the UK is small.

In an assessment of imports and exports of mineral products, the MPA noted limited tonnages of marine aggregate being landed in the UK from licence areas in the waters of other EU countries, as well as the import of crushed rock from Norway, France and Ireland, and sand from Belgium and Denmark. On the export side, the MPA noted UK exports of marine aggregates, with 18% being exported in 2017, as well as shipments of crushed rock, particularly from Scotland, and exports of china and ball clay. The association also found high-value exports of dimension stone from small- and medium-sized companies. It is these companies that are likely to be most affected by non-tariff trade barriers (i.e. increased paperwork, expensive customs procedures, additional costs associated with storage or missed deliveries).

Another area that could also be impacted by more restrictive trade between the UK and EU is equipment. In a survey of MPA members, 70% said they purchased machinery, plants and equipment from EU-based suppliers. In contrast, only 4% said they brought from the U.S. This is particularly relevant to the ready-mixed concrete sector, where almost all concrete plants are imported.


The UK is likely to withdraw from the EU Emissions Trading Scheme (ETS) and replace it with its own scheme. What form that scheme will take is currently unknown. Source: Pexels

Of course, the EU is not the sole supplier of equipment; a weakening of trade between the UK and EU will open opportunities for suppliers from other regions, such as the U.S. and Far East.

The ending of the UK’s membership of the EU will also result in an end to the free movement of people, which could prove a challenge for the UK building materials and construction sector. Returning to the MPA survey of its members, more than 75% of respondents said they employed EU-born workers, either directly or indirectly, in roles as varied as sales, technicians, repair and maintenances, haulage and logistics, and as quarry supervisors and operatives, while almost 80% of respondents said they would be either significantly affected or moderately affected, if they were not able to recruit freely from abroad.

It is not yet clear, however, what immigration system will be put in place after the transition period and the industry is already lobbying for a system that will work for them. In January 2020, the Construction Products Association (CPA) was one of a number of organizations that signed a letter to the Home Secretary highlighting the need for a “fair and sustainable immigration” policy as “critical for growth across the UK”.

A final area of consideration is environmental policy and the UK’s membership of the EU Emissions Trading Scheme (ETS). According to current UK government policy, the UK will leave the EU ETS and set up a UK equivalent. With 54% of respondents to the MPA survey indicating that continued UK participation in the EU ETS – either directly or by a linked scheme – was very important or important to their business, the question of how any new UK ETS will be structured and relate (if at all) to its EU counterpart will be viewed with interest by the industry.

Conclusion: Beyond Brexit (and COVID-19)

Even before COVID-19, Brexit was not played out in isolation but amid changing domestic politics. Boris Johnson’s substantial election victory in December 2019, for example, was made possible by the support of blue-collar working-class voters in the North and Midlands, some of whom have never before voted for the Johnson’s Conservative Party, in an upending of traditional politics not dissimilar to the wave of working-class support that brought Donald Trump to the White House in 2016.

As reward for their support, the Prime Minister is likely to try and boost spending in these regions – with infrastructure being the most obvious way of doing so. Whether this spending will materialise, is a question that only time will answer, especially given the huge financial support the government has announced to combat COVID-19 impacts on the economy. The recent decision to allow the controversial HS2 high-speed rail project to go ahead, despite a price tag well of £106 billion, is however a positive sign. Meanwhile, although construction activity is now massively curtailed due to COVID-19, when restrictions are lifted, demand will pick up as projects make up for lost time.

There is no doubt these are difficult times. The UK construction sector and the building materials companies that supply it have been dealing with political and economic uncertainty for years now; COVID-19 is only the latest and most catastrophic event in this changing and challenging world. How the UK emerges from this chaotic mix is still anyone’s guess. And, ultimately, only time will tell. 

Jonathan Rowland is Rock Products’ International Editor.

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