The Construction Products Association (CPA) has downgraded its forecasts for growth in UK construction next year from 2.3% to just 0.6%, amid signs of Brexit uncertainty and delays in major infrastructure projects.
The CPA’s Autumn Forecast predicts growth will remain flat at 0.1% in 2018, but has revised its forecast for 2019 downwards by 1.7 percentage points.
Brexit uncertainty continues to drive expectations for a sharp decline in the commercial sector, particularly felt in the offices sub-sector. Investors have signalled the uncertainty is too high to justify significant up-front investment in new floor space for a long-term rate of return, and output is expected to fall 10% in 2018 and a further 20% in 2019, the CPA said.
Private housing continued to be a “key sector” of growth for the construction industry thanks to higher levels of first-time buyer demand through the government’s Help to Buy scheme.
Over the last 12 months, the equity loan accounted for almost one third of all housebuilding sales, particularly sustaining demand for housebuilding in the North and Midlands which has offset falls in London and the South East the CPA said.
Private housebuilding output is forecast to rise 5% in 2018 and 2% in 2019; however this assumes government will extend funding for the scheme beyond 2021. Without it, housing starts are expected to start declining from 2019.
Meanwhile infrastructure output is forecast to hit a historic high of £23bn by 2020, driven by large projects such as HS2 and Hinkley Point C although the CPA said there were still concerns about how the government would deliver the projects without the cost overruns and delays seen recently on Crossrail. Growth in the sector has been revised down to 8.7% in 2019, from its previous forecast of 13%.
Noble Francis, economics director at the CPA said: “Construction continues apace in some sectors such as house building, particularly in key hotspots of activity such as Manchester and Salford. Overall, we are still expecting construction output to increase next year but this growth is highly dependent on house building outside London and also major infrastructure projects offsetting falls in activity in other sectors.
“The forecasts assume that the UK and EU will agree a deal on Brexit towards the end of the year but the continued uncertainty over a ‘No Deal’ Brexit has already had a big impact on construction new orders in construction sectors dependent on high upfront, often international, investment for a long-term rate of return. These include the construction of prime residential in London, industrial factories and commercial offices towers. Even if the UK government eventually agrees a deal with the EU on Brexit, construction output in all these sectors is expected to fall sharply during 2019 due to falls in new orders, which have already occurred in the past 18 months, feeding through to activity on the ground.
“Major infrastructure projects are expected to drive industry growth in 2019 and 2020 but the £600 million cost overruns and nine-month delays to Crossrail add to existing concerns about government’s ability to deliver major projects and lead to additional concerns about the delivery of already delayed projects such as Hinkley Point C and HS2. As a result, we have had to significantly revise down our construction forecasts for the infrastructure sector and overall.
“Looking on the positive side, if the government is able to reduce the uncertainty sooner rather than later and improve delivery of major projects, to time and budget, then the risks to the forecasts are on the positive.”
