Construction growth forecasts downgraded as risks grow

Aaron Morby 5 years ago
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Forecasters have lowered construction growth predictions for this year from 3.6% to 3% as fears mount about growing headwind for the industry.

The Construction Products Association has cut its forecast for the third time in nine months amid concern of a deepening global slowdown, the impact of the EU referendum on investors and skills shortages.

Even with these taken into account construction can look forward to around 3%-plus annual growth over the next few years, with infrastructure work expected to soar 57% by 2019, if Government can keep its spending plans on track.

CPA spring forecast highlights

  • Construction output is forecast to rise 3.0% in 2016 and 3.6% in 2017
  • Private housing starts expected to rise 5.0% in both 2016 and 2017
  • New offices activity anticipated to increase 7.0% in 2016 and 6.0% in 2017
  • Retail construction expected to fall 1.0% in 2016 and only rise 2.0% in 2017
  • Warehouses activity forecast to increase 23.7% by 2019
  • Infrastructure work is anticipated to rise 56.3% by 2019

Professor Noble Francis, economics director, said:  “The latest forecasts for construction are still positive.

“With growth of 3.0% in 2016 and 3.6% in 2017, activity in the construction industry is expected to outpace growth in the wider UK economy.

“The risks to this growth, however, continue to rise.  UK economic growth forecasts continue to be downgraded in light of poorer global economic growth prospects.

“In addition, the months leading up to the EU referendum in June will inevitably see a drop off in investment as increased uncertainty leads nervous investors to adopt a ‘wait and see’ policy until the referendum is out of the way, which could have a significant impact on UK economic growth and the construction sector in particular. ”

Despite substantial risks, the CPA anticipates growth in the three largest construction sectors; private housing, commercial and infrastructure.

It said: “Private housing starts are forecast to rise 5% in 2016 and 2017, with major house builders keen to take advantage of high demand for home ownership and government policies that attempt to deal with issues around affordability. 

“After a spike in property transactions in Q1 owing to April’s increase in stamp duty for buy-to-lets and second homes, however, don’t be surprised to see a fall in property transactions in Q2.  That shouldn’t affect the general housing market medium-term, as the return on investment in property remains considerable.”

Work in the commercial offices sector is forecast to grow by 7% this year and a further 6% in 2017 due to major developments in the pipeline, not just in London but also Birmingham and Manchester.

But retail construction is expected to fall 1% this year and only rise 2% next year as major supermarket chains consolidate, focusing more on small convenience stores where sales margins are higher. 

The shift away from high street shopping to the internet will continue to drive industrial warehouses construction, expected to increase 10% this year and a further 5% in 2017.

Francis said: “Infrastructure work is forecast to rise 56.3% by 2019 due to growth in rail, energy, roads, water and sewerage; however, there are key issues in the medium-term. 

“The most pressing issue is whether the wider construction industry actually has the skills available to deal with double-digit growth in the infrastructure, commercial and private sectors at the same time. 

“By 2019, total construction output is expected to be £20bn higher than in 2015, yet employment in the industry remains 324,000 lower than it was over seven years ago.  If the growth we have forecast is to be achieved then the serious issue of skills shortages needs to be addressed.”

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