However, with growth averaging close to 4% for construction output between 2016 and 2018, the industry will see robust compound growth of 17.8% by the end of 2018.
These figures are the highlights of the latest forecasts from the Construction Products Association (CPA). The CPA expects a slight softening in growth due to election uncertainty and capacity constraints.
The CPA’s annual forecast report states: “There could be a hiatus in infrastructure contract awards, capital investment and lending if no government is formed quickly following the election. Given long-term frameworks and the lag between contracts or investment decisions and output, any hiatus would likely only impact upon output from 2016.”
Key highlights from the forecasts include:
- Private house building forecast to rise 10.0% in 2015 and 20.2% by 2018
- Commercial offices construction expected to increase 8.0% in 2015 and 25.0% by 2018
- Infrastructure activity forecast to rise 7.9% in 2015 and 51.5% by 2018.
The overall 17.8% rise in output in the construction industry between 2015 and 2018 is anticipated to be primarily driven by growth in the private housing (20.2%), commercial (21.0%) and infrastructure (51.5%) sectors. These account for half of the entire construction industry.
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Activity in the industry is expected to rise 5.3% in 2015 alone but, between 2016 and 2017, growth rates are expected to slow a little. Output in construction is anticipated to increase 4.2% in 2016 and rise a further 3.4% in 2017. The slower growth rates partly reflect the higher base, with output in 2016 finally surpassing the level seen at the 2007 pre-recession peak.
The slower rates of growth also partly reflect increased uncertainty regarding output in 2016 and 2017 from a potential hiatus in contract awards this year due to the general election in May. In 2018, construction output is expected to accelerate once again as major infrastructure projects boost activity.
CPA economics director Noble Francis said: “Last year’s recovery in construction was driven primarily by 18.0% growth in private house building. This year, industry growth will be more broad-based as further a further increase of 10.0% in private house building is expected to be supported by 8.0% growth in commercial offices and 7.9% growth in new infrastructure.
“Growth rates across most of the industry are expected to slow in 2016 and 2017 because of uncertainty regarding the general election in May, which could give pause to both contract awards and industry investment. Whilst this is unlikely to impact construction activity this year, due to the lag between contracts and activity on the ground, it may have an adverse effect on output in both 2016 and 2017.”
Dr Francis continued: “Private house building growth is expected to slow from 10.0% this year to 5.0% in 2016 and 3.0% in 2017. In addition, activity in the commercial offices sector, which is still 39.5% below the pre-recession peak, is forecast to grow 7.0% in 2016 and 5.0% in 2017. Growth in total construction output, therefore, is expected to slow to 4.2% in 2015 and 3.4% in 2016.
“The industry also has concerns regarding capacity constraints in the medium-term. Whilst output in the sector during 2014 was 8.5% below the level seen in 2007, overall capacity last year was not a key issue. However, construction output is forecast to surpass the pre-recession peak during the next 18 months, this despite the industry having lost 343,000 jobs and considerable materials capacity in the seven years following the financial crisis. As a result, it is essential that there is significant investment in UK construction skills and manufacturing over the next few years if the growth forecast is to be achieved.”
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