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Fri April 23 2021

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Political uncertainty hits construction growth forecasts

13 Apr 15 Construction economists have downgraded their growth forecasts for 2016, citing political uncertainty, but the forecast for 2015 has been revised upwards and longer-term projections are unaffected.

The Construction Products Association (CPA) is forecasting construction output growth of 5.5% for 2015 and 4.0% for 2016. Two months ago the CPA was forecasting headline growth of 5.3% and 4.2%.

The revised forecast still amounts to a compound growth rate for construction output of 9.72% for this year and next, but now 2015 will be a little stronger and 2016 a little softer, CPA economists reckon, making 2016's slowdown perhaps more noticeable.

Despite this, output in 2016 will finally pass the heights of the pre-recession peak of 2007.  

The CPA is projecting compound growth of 17.9% over the next four years, which is a slight rise in optimism on the 17.8% it was projecting two months ago.

Key highlights from the spring edition forecasts include:

  • Construction output to grow 5.5% in 2015 and 4.0% in 2016, surpassing the pre-recession peak
  • Private housing starts to rise 10.0% in 2015 and 5.0% in 2016
  • Public sector construction to rise 2.4% in 2015 and 2.2% in 2016
  • Infrastructure output to rise 50.8% by 2018
  • Commercial construction expected to increase 6.4% in 2015, 5.2% in 2016 and 4.4% in 2017
  • Infrastructure activity forecast to rise 7.6% in 2015, 9.2% in 2016 and 10.6% in 2017

CPA economics director Noble Francis said: “Construction output is forecast to increase 5.5% in 2015, which is more than double the rate of growth for the UK economy, due to growth in the three key sectors of construction; private housing, commercial and infrastructure.

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“There has been a slowdown in the general housing market but house building continues to drive construction industry growth.  After rising 13.3% in 2014, private house building is forecast to increase a further 10.0% to 142,000 new homes in 2015.  Commercial construction, worth £22bn each year, is forecast to rise 6.4% in 2015 due to work on major towers in London and also large offices projects in Birmingham and Manchester.

“Over the following two years, however, construction output is forecast to be adversely affected by the UK’s most uncertain election in more than 40 years.  The lag between construction contracts and work on the ground means that construction activity in 2015 probably won’t be impacted, since the majority of work for the year has already been planned.  Instead, we expect a break in private and public investment this year for future projects, which in turn will lead to slower construction growth of 4.0% in 2016 and 3.4% in 2017.”

Dr Francis continued:  “Although fewer homes are being built than we need each year, private house building growth is forecast to slow to 5.0% in 2016 and 3.0% in 2017.  Again, this is primarily due to uncertainty regarding government policy such as Help to Buy, which has otherwise stimulated house building in the last two years.  This means that despite five years of recovery projected to 2017, private house building at that time is still forecast to be 19.2% lower than at the pre-recession 2007 peak. 

“Similarly, increases in commercial activity are likely to be constrained by a hiatus in business investment this year due to the election, with growth in the sector expected to slow to 5.2% in 2016 and 4.4% in 2017.

“One area expected to be largely unaffected by the election is infrastructure activity, which is anticipated to increase throughout the forecast period to 2018.  Strong growth of 7.6% this year is expected to accelerate to 9.2% in 2016 and 10.6% in 2017 owing to the £466bn pipeline of work under the National Infrastructure Plan.  This includes large projects such as the £1.5bn A14 redevelopment, the £4.2bn Thames Tideway Tunnel and, eventually, the £16bn Hinkley Point C nuclear power station.”

He concluded: “Overall, the Construction Products Association forecasts construction output surpassing the pre-recession peak next year, and expect output in 2018 to be 17.9% higher than in 2014.  For this to materialise, however, industry will need to work together with the new government to address the need for greater investment in capacity and skills.”

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