UK construction growth prospects downgraded

Growth prospects for the UK construction industry have been downgraded amid growing signs that 2018 will be a difficult year for the industry.

Forecasters at trade body the Construction Products Association (CPA) now believe the sector will expand just 0.7% next year, the slowest rate in six years and a downward revision from its previous estimate of 1.2%.

The downgrade is due to a combination of the UK’s decision to leave the European Union, the slowing economy, falling real wages and increasing costs.

However, output is still on course to rise by 1.6% this year, which would beat previous forecasts of 1.3%, thanks in part to a significant increase from new contracts and activity in the £6.9bn public housing repair, maintenance and improvements to deal with short-term measures following the Grenfell Tower tragedy.

Growth over the next two years is expected to be fuelled primarily by an increase in infrastructure activity, driven by the HS2 and the Thames Tideway Tunnel projects, as well as private housebuilding, which should help offset a sharp fall in the commercial and industrial sectors.

In fact, near term growth for the industry will also be heavily reliant on private housebuilding with growth in private housing starts of 3% in 2017 and 2% in 2018.

Noble Francis, economics director at the CPA, 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.

“Prospects for construction have been adversely affected by slowing UK economic growth and falling real wages on one side and sharp rising costs on the other.

“A fall in new investment, especially where it is large international investment looking for a long-term rate of return, is forecast to lead to declines in the commercial and industrial sectors.

“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.

“Increases in infrastructure investment are also expected to offset these declines and be the key driver of any construction growth going forward.

“However, 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% in 2018.”