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Construction output forecast slashed amid Brexit uncertainty

20 January 2019 | By Neil Gerrard

The Construction Products Association (CPA) has downgraded its forecast for the UK construction industry’s output this year, amid uncertainty about the manner of the UK’s withdrawal from the European Union (EU).

Six months ago, the CPA expected output to rise by 2.3% in 2019, however it has now cut that figure to just 0.3%.

However, the uncertainty could drive growth in certain sub-sectors of the industry, the CPA said.

In its latest growth forecast, it predicted that the private housing and infrastructure sectors would remain the primary drivers of industry growth in the coming years.

Housebuilding output is forecast to rise by 2% in 2019 and 1% in 2020, driven by the government’s Help to Buy scheme, which continues until March 2023.

Meanwhile, the infrastructure sector is expected to reach its highest level on record in 2019 driven by large projects such as HS2, Thames Tideway and Hinkley Point C. Growth is forecast to rise by 8.8% in 2019 and 7.7% in 2020.

But the commercial sector, particularly felt in the offices sub-sector, is expected to see significant declines. Investors have signalled the uncertainty is too high to justify significant up-front investment, and output is expected to fall 20% in 2019.

Nonetheless, the CPA said Brexit-related uncertainties could help drive growth in other sub-sectors. The harbours sector is expected to grow by 12% in 2019 and 10% in 2020 and could be higher if works on improvements and expansions of ports need to be carried out. If there are major issues around Brexit, warehousing will be another sector that benefits from increased activity due to demand for storage and stockpiling facilities. Following growth of 20% in 2018, construction activity in this sector is forecast to rise a further 10% in 2019 and 2020.

Noble Francis, economics director at the Construction Products Association said: “Fortunes for construction depend greatly on which sector firms are operating in.

“Our latest construction forecasts are conditional on either a revised Brexit Withdrawal being agreed with the EU and getting through UK Parliament or a delay to Article 50. However, even if this occurs, the uncertainty surrounding Brexit is clearly affecting the construction industry in areas that require high investment up front for a long-term rate of return such as commercial offices.

“The construction of prime residential apartments and industrial factories is also being affected greatly by the high and rising Brexit uncertainty. However, whilst this uncertainty adversely affects some construction sectors, it provides a boost to others. The warehouses and harbours are relatively small sub-sectors but both are growing rapidly and are expected to enjoy double-digit growth this year as the demand rises for storage and trading facilities.”

Francis also warned, following the news that work on Hitachi’s Wylfa Newydd nuclear power station had been suspended, that “government inability” to deliver major projects to time and budget remained a “major concern” when it came to infrastructure growth.

“If the government can improve its delivery of major infrastructure projects, then construction output could outperform our forecasts in spite of Brexit uncertainty. However, it is a big ‘if’,” he added.

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