Construction growth forecast downgraded

Richard Furlong - City Surveys Group

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Published: 16th August 2017

This Article was Written by: Richard Furlong - City Surveys Group

  


Economic prospects for UK construction industry growth have been given a gloomy forecast, with a warning of ‘clear signs’ that next year will be ‘difficult’ for the industry.

Economists at the Construction Products Association (CPA) have predicted a poor outlook for so-called ‘crane spotters’ (think train spotters, for construction) as they expect industry growth to drop to its lowest ebb in six years ahead of Brexit negotiations. The number of cranes needling Britain’s city skylines is often used as a general benchmark for the health of the UK economy as a whole.

With the British economy faltering, a marked fall in real wages, and costs increasing, construction growth is only expected to rise by 0.7% in 2018. The figure would be the lowest in six years; previously, the CPA had forecast 1.2% growth for 2018.

Despite this, construction output growth for this year is expected to exceed previous forecasts, with output upgraded to 1.6%, replacing the CPA’s previous estimate of 1.3%.

In a tragic twist to the tale, this sharp rise has been attributed by the CPA to the vast number of repairs to social housing taking place in the wake of the Grenfell Tower disaster.

Economics Director for the CPA, Noble Francis, said that while contractors were currently still reporting high levels of activity there were ‘clear signs’ the sector was slowing.

He said: “Construction firms are still reporting that activity remains high and there are still lots of cranes around. But there are clear signs that construction output is slowing and that next year in particular will be difficult for the industry.

“Despite the slowdown in the general housing market, particularly in London, house builders continue to increase supply, albeit more slowly than in recent years.

“Currently, more than a third of new house building is being sustained by the government’s Help To Buy and should continue to do so over the next 18 months if the wider economy and housing market don’t slow further. However, if economic conditions do deteriorate further, house builders can react quite quickly if necessary.”

One of the stalwarts of construction growth output – private house building – has been earmarked for a significant slowdown in 2018, to 2% from 3%, due to decreasing consumer confidence and a tangible drop in real wages.

It is hoped the government’s Help To Buy scheme will bolster the sector by underpinning house building projects. The scheme, due to run until 2021, enables buyers to purchase new-build homes worth up to £600,000 with just a 5% deposit.

However, last week it was reported that the Help To Buy scheme could come to an end sooner, with the rumours having sparked a surge in housebuilders’ share prices.

Analysts believe it’s unlikely the policy will be altered before 2021. A spokesperson for stockbrokers’ firm, Jefferies, said: “If potential changes were flagged ahead of this then housebuilders would have time, if needed, to adjust their site phasing and product mixes across their sites.”

Therefore, the construction industry will need to rely heavily on major infrastructure projects, including HS2 and the Thames Tideway Tunnel, over the next couple of years. These projects are expected to offset the sharp fall in private, commercial and industrial contracts but are not without their worries too.

Francis added: “Concerns regarding rising costs and delays to major projects continue to dog the sector so there remains a high degree of uncertainty around infrastructure growth in the next few years. And this infrastructure investment will be vital for the industry as a whole. Without it, total construction output would fall by 1.0% in 2018.”

For 2019, the CPA has pencilled in growth of 1.8%. However, it has added a proviso to the estimate, stating that unprecedented economic and political uncertainties created by Brexit and the General Election mean that ‘risks around this forecast are considerable’.


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