For most
construction firms it will be difficult to escape the impact subdued economic
growth, rising inflation and falling real wages will have on the industry over
the next two years.
In addition,
negotiating unprecedented uncertainties as the UK leaves the EU is expected to
result in little growth, with output expected to rise 0.7% in 2017 and remain
flat in 2018.
The latest forecasts
from the Construction Products Association come at a time where any growth at
all will be reliant on government's delivery of infrastructure projects. This
is likely to have a profound effect on construction output, which if not realised
would lead to an industry-wide decline of over 1.0% in 2018.
Infrastructure
activity is forecast to grow 25.4% by 2019 and will be due to major projects in
rail and water & sewerage such as HS2 and the £4.2 billion Thames Tideway
Tunnel.
House building will
continue to be a primary driver of growth, with private housing starts rising
by 5.0% in 2017 and 2.0% in 2018. In 2017 Q2 the government's Help to Buy
equity loan accounted for 40% of new homes and has been a significant policy
for supporting building activity. The additional £10 billion that government
announced for the scheme in October will continue to sustain house building
despite the slowdown in the general housing market.
The sharpest decline
will be in the commercial sector, and particularly felt in the offices
sub-sector as EU Referendum-induced wariness among investors has led to a sharp
fall in contract awards. Office construction is expected to decline 5.0% in
2017, worsening to a 15.0% decline in 2018, and is likely to accelerate if it
proves to be the case that the UK will not be part of the Single Market and
financial services firms choose to transfer operations out the UK into other EU
member states.
Noble Francis,
Economics Director at the Construction Products Association said:
"Construction activity is currently high, particularly in cities outside
the capital such as Birmingham and Manchester.
"However, the
forecasts highlight that the fall in construction new orders since the second
half of 2016 is now starting to feed through to activity on the ground as
projects signed up to pre-referendum end and are not being replaced. This is
especially the case in key areas such as the construction of new commercial
offices in London, where demand for new high profile office space from the
financial sector has slowed considerably.
"The falls in
commercial construction may be offset by growth in house building and
infrastructure. In house building, government’s announcement of £10 billion of
additional funding for Help to Buy is forecast to support growth.
"However, due
to the slowdown in the general housing market, particularly in London, house
building is only expected to grow by 2.2% in both 2018 and 2019.
"Infrastructure
is expected to be major driver of construction activity in the next few years
with work on major projects but the sector has been dogged by constant cost
overruns and delays. Given that construction activity is forecast to be flat in
2018, if government cannot improve delivery of its infrastructure plans,
construction output is likely to decline next year."
