Exports of UK architectural services reached £773 million last year, but construction as a whole is buying in more
The latest official figures from the Office for National Statistics (ONS) show UK exports of architectural services leapt to new heights in 2018. In cash terms they hit £773 million – a rise of £181 million on the 2017 figure.
According to records in the ONS’ Pink Book released at the end of October, architectural activities now contribute more than £700 million to the UK balance of payments.
The rise and rise of exports by UK architecture firms, plotted in Chart 1, dates to just before the recession, now over a decade ago. In the years to 2005 the level of exports was running at around £100 million a year. By 2007 that had increased beyond £300 million.
They remained high through the recession, supporting a sector that took a heavy knock as UK workloads dropped sharply. From 2008 to 2010 when its output was falling, the share of total work from overseas rose from below 10% to above 15% as work increased, helping to cushion the blow.
Chart 2, using figures taken from ONS Annual Business Survey estimates of the gross value added by architectural activities and export data from the Pink Book 2019, illustrates how exports have helped to dampen the effects of volatility in activity.
It shows that as work in the UK picked up in 2011 the share of overseas work fell, dipping below 10% again in 2015, although it remained fairly level in nominal terms.
But with workloads looking increasingly shaky in the home market since 2016, UK architects (mainly the larger firms) have sensibly once again turned their eyes to overseas markets. The share of overseas work, on these figures, has returned to above 13% and is helping to maintain the momentum of growth within the sector.
The figures may not be perfect, but they illustrate the point that the overseas markets are now being seen more clearly as a means of smoothing workloads across softer periods in the UK market and of maintaining more stable growth.
The effect of having an established overseas market to turn to can be seen in the figures for both jobs and prices. Employment has held firm and prices have held firmer. The jobs data shows continued strength in employment for architects and Chart 3 shows the ONS producer prices for architectural activities. The data suggest that prices were under pressure and have been firmed up more recently, coinciding with the rise in exports.
With the RIBA Future Trends survey for September showing workload expectations pointing to little or no growth, there is plenty to justify a further push into overseas markets (Chart 4). Furthermore, it strengthens the case given for the UK architecture sector having a strong export base.
That argument is even more pertinent today given the massive global pipeline of work expected over the next decade or two and the lack of professional skills to service a potential surge in activity for those working in the built environment, architects among them. The UK, with its existing infrastructure and institutions, provides an obvious solid base on which to build an expanding global architectural infrastructure.
However, the export successes of architects come against a (rather surprising) £1.5 billion drop in the balance of payments for the wider architectural, engineering and other technical services sector. This is the result of a rapid rise in imports of engineering services over the past three years.
In the 10 years before 2016, imports had hovered around £1 billion. In 2016 they rose to £1.6 billion, in 2017 to 2.5 billion and in 2018 they hit £3.1 billion. The finer detail revealed in the trade figures by country and type of work throws up France and, intriguingly, Brazil as two of the nations that have sharply increased their exports of engineering services into the UK. The US, Germany and the Gulf states have also seen a rise in 2017 and 2018 over the 2016 figure.
How much the imported work is down to the nature of specific projects or associated relationships is unclear. But the timing of this sharp rise inevitably pumps up concerns over the potential impact of Brexit on attracting skills to the UK.
The engineering sector is struggling to attract talent as it is, with policy makers and industry jointly pushing the case for greater attention on STEM subjects at schools and universities. But Brexit has added a further worry that it might dim the attractiveness of the UK and stem the flow of global talent into the nation’s consultancies.
There are corporate fears too that were expressed in the 2017 Association for Consultancy and Engineering report The Effect of EU Migration on the UK Consultancy and Engineering sector Post-Brexit. It warned that 22% of large consultancy firms will consider moving jobs out of the UK if it becomes more difficult to move staff around Europe.
In a digital age and with overseas engineering and design work increasingly in the hands of multi-national firms, the location of staff can be extremely flexible across the globe. This greater flexibility is a major reason why UK architecture has managed to be successful in exporting in recent years. The UK is regarded as attractive to architects.
While the details that lie behind the rise in imports of engineering services requires careful assessment, the fact that there has been an abrupt shift in fortune does act as a warning that continued prowess in export markets is not a given.
And, on the subject of warnings, given that the last sharp rise in overseas workloads anticipated a coming recession in the UK market, does the current sharp rise signal something similar?
If it does, the healthy level of exports will provide significant padding to ease the pain of any fall in UK workloads.