Brexit prompts more growth forecast revision
Industry economists have been forced to tear up their forecasts in the wake of the Brexit vote and severely downgrade their view on the industry’s future.
The Construction Products Association (CPA) is the latest organisation to slash its growth forecast for 2017, cutting it from 4.1% to just 0.8%.
This time last year, the CPA economists were confidently predicting total construction output to grow 4.1% in 2017, 4.2% in 2018 and 4.0% in 2019, although they did recognise that the EU referendum had potential to alter that.
The new CPA forecasts look very different – now they predict construction output to grow by 0.8% in 2017, 0.7% in 2018 and 2.2% in 2019.
Despite the substantial revisions, industry prospects remain ‘bright’, the CPA said.
The CPA echoes the view of the Construction Industry Training Board (CITB) Construction Skills Network report, published last week, which said that coming growth depended on smooth progress for a few politically-sensitive large-scale infrastructure projects, including HS2 and nuclear power stations.
The CPA forecasts that growth to 2019 will be primarily driven by a 28% increase in infrastructure activity, which along with a 6.1% increase in private house building would offset expected falls in commercial and industrial construction.
CPA economics director Noble Francis said: “Near-term prospects for construction appear bright with industry growth boosted by several new billion pound infrastructure projects across the country such as the Thames Tideway Tunnel, HS2 and Hinkley Point C and the government’s £23bn National Productivity Investment Fund. A rise in infrastructure output is expected to ensure positive growth for the construction industry overall if the government can ensure it delivers on its announcements.”
House-building is also expected to remain a key source of output growth, with private house building starts rising at 2.0% per year between 2017 and 2019.
Noble Francis said: “Construction industry prospects should also be boosted by a positive outlook from major house-builders, who appear willing to increase supply as they take advantage of rising house prices in an undersupplied market. The exception to this is the high-profile niche of prime residential in central London, where there is already an oversupply of properties and sharply falling prices, which we expect to persist over the next 12-18 months.
“Substantial risks to growth remain however as the fall in the value of sterling is leading to increased import and raw materials costs. On the demand side, whilst the uncertainty post-referendum has not impacted activity on site as yet, it appears to be affecting areas that require high upfront investment for a long-term rate of return such as commercial offices and industrial factories. Both have seen new contract awards fall and this is likely to feed through into falls in sector activity from the second half of this 2017.
“Despite these concerns, infrastructure and private housing are anticipated to ensure that the construction industry grows between 2017 and 2019, providing an extra £5.3bn of economic activity for the construction industry and wider UK economy.”
Key results from the latest CPA construction forecasts:
- Construction output to rise by 0.8% in 2017, 0.7% in 2018 and 2.2% in 2019
- Infrastructure work to rise by 7.0% in 2017 and 10.7% in 2018
- Private housing starts to rise 2.0% per year in 2017 and 2018
- Offices construction to decline 3.0% in 2017 and 10.0% in 2018
- Retail construction to fall 8.0% in 2016 before falls of 4.0% in 2017 and 2.0% in 2018
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This article was published on 13 Feb 2017 (last updated on 14 Feb 2017).