Predicted growth for the UK’s construction industry in 2019 has been lowered following falling order levels and Brexit uncertainty
The Construction Products Association’s autumn forecasts for the construction industry expect growth will remain flat in 2018, and rise by only 0.6% in 2019, a substantial downgrade from its previous estimate of a 2.3% increase.
Despite a weakened market, private housing continues to be a key sector of growth for the construction industry, with first-time buyer demand enhanced by the government’s Help to Buy scheme.
Over the last 12 months, the equity loan accounted for almost one-third of all housebuilding sales. It has particularly sustained demand for housebuilding in the north and Midlands which has offset falls in London and the southeast. The housebuilding sector’s output is forecast to rise 5% in 2018 and 2% in 2019.
The infrastructure sector also remains a key driver of growth for the whole construction industry, with output forecast to hit a historic high of £23bn by 2020, thanks to HS2 and Hinkley Point C. However, the delays and cost overruns seen on Crossrail recently have given the economists at the CPA doubts about whether these other major infrastructure projects can be delivered without cost overruns and delays. It, therefore, sounds a note of caution and has reduced growth in the infrastructure sector to 8.7% for 2019, down from its previous forecast of 13%.
Brexit uncertainty has triggered a sharp decline in the commercial sector, particularly felt in the offices sub-sector. With investors reluctant to finance new floor space, output is expected to fall by 10% in 2018 and a further 20% in 2019 in this sector.
CPA economics director Noble Francis said: “Construction continues apace in some sectors such as house-building, particularly in key hotspots of activity such as Manchester and Salford. Overall, we are still expecting construction output to increase next year but this growth is highly dependent on house building outside London and also major infrastructure projects offsetting falls in activity in other sectors.
“The forecasts assume that the UK and EU will agree a deal on Brexit towards the end of the year but the continued uncertainty over a ‘No Deal’ Brexit has already had a big impact on construction new orders in construction sectors dependent on high upfront, often international, investment for a long-term rate of return. These include the construction of prime residential in London, industrial factories and commercial offices towers. Even if the UK government eventually agrees a deal with the EU on Brexit, construction output in all these sectors is expected to fall sharply during 2019 due to falls in new orders, which have already occurred in the past 18 months, feeding through to activity on the ground.
“Looking on the positive side, if the government is able to reduce the uncertainty sooner rather than later and improve delivery of major projects, to time and budget, then the risks to the forecasts are on the positive.”