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Construction output to accelerate in 2019 and 2020

30 July 2018 | By Neil Gerrard

Construction output is set to accelerate in 2019 and 2020, driven along by growth in the housebuilding sector.

That's the prediction from the Construction Products Association (CPA), as part of its summer forecast.

The CPA said that after five years of consecutive growth, construction will see a "moderate fall" in output in 2018.

That will be followed by 2.3% growth in 2019 and 1.9% in 2020, thanks to a boost in private housing through the government's Help to But scheme which has encouraged an increase in housebuilding activity outside London.

The sector’s output is forecast to rise 5% in 2018 and 2% in 2019.

Meanwhile the CPA said the infrastructure sector remains a primary driver of growth for the whole construction industry, with output forecast to hit a historic high of £23.6bn by 2020, driven by large projects such as HS2 and Hinkley Point C.

Without the forecast growth in infrastructure and private housing activity, total construction output would fall by 3% in 2018 and remain flat in 2019.

Carillion impact

The demise of Carillion resulted in a poor performance for the industry at the start of the year, which combined with the bad weather, was extimated to have lost UK construction £1bn of work.

The CPA said some 60% of this work may be recovered, but Carillion’s collapse will cause further delays at two major hospitals as work on the £335m Royal Liverpool University and Birmingham’s £350m Midland Metropolitan hospitals is on hold until at least 2019.

Meanwhile, it claimed that Brexit uncertainty continues to drive the sharpest decline for construction in the commercial sector, particularly in the offices sub-sector which is expected to fall 20% in 2018 and a further 10% in 2019.

And struggles on the high street as consumers shift to online shopping mean new retail construction is expected to fall by 10% this year.

Noble Francis, economics director at the Construction Products Association said: “Clearly the first quarter of the year was difficult for the industry due to the demise of Carillion and the bad weather. Things improved markedly in the second quarter due to a catch-up in work as we would have expected but, overall, it’s mixed fortunes for contractors at the moment. On the positive side, house builders are keen on accelerating building rates outside of London and that is expected to be enough to offset sharp falls in house building in the capital.

“Firms working on major infrastructure projects also have a lot of work in the pipeline. Infrastructure output is forecast to rise by 3% in 2018 and 13% in 2019. This growth is highly dependent on large projects such as HS2 and Hinkley Point C, the first of the new nuclear power stations but, as ever, there remain concerns about government’s ability to deliver infrastructure projects without the cost overruns and delays that we have seen on Crossrail and HS2 recently.

“On the negative side, the elephant in the room is clearly Brexit uncertainty, which has had a big effect on international investment, especially where it is high up-front investment for a long-term rate of return, which is now highly uncertain. It badly affects demand in sectors such as prime residential in London, commercial offices towers and industrial factories, which is dependent on manufacturing.

“Overall in construction, there is forecast to be a slight fall in activity, of -0.6%, in 2018 after five consecutive years. However, in 2019, we are anticipating of growth of 2.3% due to house building and infrastructure.”

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