Growth prospects for the construction industry in 2018 have been downgraded as the UK prepares to leave the European Union (EU).
So say the latest forecasts by the Construction Products Association (CPA), which expects output to soften.
Uncertainty the buzz word
Rebecca Larkin, senior economist at the CPA, says: “Although we joked about it when discussing the press release, uncertainty is the buzz word.
“That uncertainty has already had an impact on contract awards and appetite for new projects in the commercial offices and industrial factories and warehouses sectors. This will filter through into a gap in activity at the end of this year and most of 2018.
“The environment of uncertainty means businesses are unwilling to invest in new office space. This is particularly the case in financial services, where post-Brexit agreements on passporting and movement of labour are major considerations and unknowns right now.
Rebecca Larkin, senior economist, CPA, courtesy of CPA
Investors less willing
“Plus, investors who would usually finance these projects are less willing to put up a large amount up-front when long-term rates of return are subject to a greater degree of uncertainty than usual.”
The combination of a slowing economy, falling real wages and rising costs and falling real wages is expected to impact on new contract awards and activity during the second half of 2017 and in 2018.
Growth heavily dependent
- Growth for 2018 is thus expected to rise by just 0.7%
- This is the slowest in six years
- This is a downward revision from 1.2% in previous forecasts
- This is heavily reliant on increases in private house building and infrastructure delivery
- Without growth in these two sectors, construction output will remain flat in 2017 and fall by more than 1% in 2018
- For now, though, on-site activity is high and expected to rise by 1.6% in 2017, an upward revision from 1.3% in previous forecasts
Grenfell fire gives short-term boost
This will be partly due to a sharp rise from new contracts and activity in the £6.9bn public housing repair, maintenance and improvements sector. This is to deal with short-term urgent measures that will need to be made in light of the Grenfell Tower fire.
Falls in repair and maintenance work contributed to the fall in construction output in the UK in May 2017 of 1.2%, according to the Office for National Statistics in its report, published 7 July.
The extent of the urgent work is currently difficult to ascertain. However, the CPA expects that even if local authorities delay non-essential maintenance to focus on urgent fire safety work, it is likely to require additional resources.
Further cuts to public housing repair, maintenance and improvement are difficult to envisage in the light of this, says the CPA.
Infrastructure, housebuilding driving growth
Increases in infrastructure activity and private housebuilding are expected to be the primary drivers of growth over the next two years. This will help offset a sharp fall in the commercial and industrial sectors.