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Growth prospects downgraded for UK construction industry

Published by , Assistant Editor
World Cement,

As the UK prepares to leave the EU, growth prospects for its construction industry in 2018 have been downgraded, according to the latest forecasts by the Construction Products Association (CPA). Output is expected to soften as a slowing economy, falling real wages, and rising costs adversely affect the industry. Growth for 2018 is therefore only expected to rise by 0.7%, the slowest in six years, and a downward revision from 1.2% in previous forecasts.

For now, onsite activity is high and output is expected to rise by 1.6% in 2017, an upwards revision from 1.3% in previous forecasts. In part, this will be due to a sharp rise from new contracts and activity in the £6.9 billion public housing repair, maintenance, and improvements to deal with short-term urgent measures that will need to be made in light of the Grenfell Tower fire.

An increase in infrastructure activity and private housebuilding are expected to be the primary drivers of growth over the next two years. This will help to offset a sharp fall in the commercial and industrial sectors. Growth in infrastructure will be supported by major rail, water, and sewage projects, including HS2 and the Thames Tideway Tunnel, with activity forecast to grow by 7.4% in 2017, and 6.4% in 2018. Growth will be reliant on delivery of these projects and the extent of the continued delays to main works at Hinkley Point C have resulted in it no longer being included in the CPA forecasts.

Growth for the industry in 2018 will also be heavily reliant on private housebuilding, although the sector is still reliant of Help to Buy equity loans to drive housebuilding numbers. The policy is in place until 2021, which is expected to support demand for new builds and drive growth in private housing starts by 3.0% in 2017 and 2.0%in 2018. However, this is slower than in previous years, given uncertainties over the strength of consumer confidence, and a fall in real earnings.

Looking further ahead, it is projected that growth in 2019 will be at 1.8%, but the unprecedented economic and political uncertainties following the general election mean that the risks around this forecast are considerable.

Noble Francis, Economics Director at the Construction Products Association said: "Construction firms are still reporting that activity remains high and there are still lots of cranes around. But there are clear signs that construction output is slowing and that next year, in particular, will be difficult for the industry. Prospects for construction have been adversely affected by slowing UK economic growth and falling real wages on one side and sharp rising costs on the other. A fall in new investment, especially where it is large international investment looking for a long-term rate of return, is forecast to lead to declines in the commercial and industrial sectors." "Despite the slowdown in the general housing market, particularly in London, house builders continue to increase supply, albeit more slowly than in recent years. Currently, more than a third of new house building is being sustained by the government's Help to Buy and should continue to do so over the next 18 months if the wider economy and housing market don’t slow further. However, if economic conditions do deteriorate further, house builders can react quite quickly if necessary.

"Increases in infrastructure investment are also expected to offset these declines and be the key driver of any construction growth going forward. However, concerns regarding rising costs and delays to major projects continue to dog the sector so there remains a high degree of uncertainty around infrastructure growth in the next few years. And this infrastructure investment will be vital for the industry as a whole. Without it, total construction output would fall by 1.0% in 2018."

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