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Construction output to remain flat in 2018

5 February 2018 | By James Kenny

Demand for office space in London is expected to hit output (Image: Patrimonio Designs Limited/Dreamstime.com)

Construction output is forecast to remain broadly flat in 2018, rising by only 0.2%, before growth of 1.7% in 2019.

The Construction Products Association’s (CPA) 2018 winter forecast says the sharpest decline for construction in 2018 will be in the commercial sector, and particularly felt in the offices subsector as a lack of clarity on the UK’s post-Brexit deal has led to a sharp fall in contract awards.

Offices construction is expected to decline 15% in 2018 and 10% in 2019, with further concern this will accelerate if firms choose to move operations out of the UK into other EU member states.

Following the Grenfell Tower fire in June last year, 160 social housing towers were deemed unsafe and in need of urgent work. However, the sector is suffering from a lack of finance available to local authorities and concerns over the capacity to deliver the work.

The public housing repair, maintenance and improvement sector has fallen 20% since 2010, and despite the urgency brought about by Grenfell, output is expected to fall by a further 2% in 2018.

Infrastructure remains the main bright spot for UK construction where any growth will be reliant on government’s delivery of major projects. If realised this would result in a 6.3% rise in infrastructure work in 2018.

However, concerns for the industry have escalated since Carillion’s liquidation as the firm accounted for £850m of the sector’s projects. The length of hiatus on Carillion sites will be critical to growth, and it is too early to tell what impact this will have on the 25,000-30,000 firms in its supply chain. 

Noble Francis, economics director at the CPA, said: “Recent construction output and Markit/CIPS data has already highlighted subdued activity in the construction industry and our latest forecasts suggest that 2018 is likely to be tough for the industry.

“Overall, we are forecasting construction output to remain broadly flat this year, but this is before the full impacts of the liquidation of Carillion in January feed through the supply chain and government will need to take a key role in mitigating the effects as it has already done on the services part of Carillion.

“Infrastructure activity is still expected to grow by 6.3% this year if politicians are able to deliver on their many announcements of major projects and spending across roads, rail and energy.

“Government will also need to help councils with funding to address issues on social housing towers above 18 metres since the Grenfell tragedy. Output in public housing repair, maintenance and improvement has already fallen each month since the tragedy and, without assistance, will fall 2% this year.

“Output in the commercial sector, the second largest construction sector, is expected to fall during 2018, primarily driven by a fall in demand for new office space, particularly within London. We expect offices construction to fall 15% this year as Brexit uncertainty means that international investors hold back on major new investment in high-profile space in the capital.”

Image: Patrimonio Designs Limited/Dreamstime.com

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