Construction output post EU referendum surpasses growth expectations thanks to infrastructure boom

1624

Construction output grows in 2017, despite an expected fall due to the economic uncertainty surrounding Brexit, putting off investment for new development

The Construction Products Association (CPA) have forecast construction output to rise each year between 2017-2019, by 1.3% in 2017, 1.2% in 2018 and 2.3% in 2019. These figures are very encouraging despite rising material costs and investor uncertainty. A poor few months for the construction industry were seen following the referendum vote in June 2016, with growth resuming in September.

Growth not uniform across all sectors

This positive news, however, is not shared across all sectors of the construction industry. Falls in commercial and industrial construction are expected as a result of the economic climate. Significant investment valued at £300 billion over the next four years for infrastructure projects such as HS2, as well as major projects in the energy, rail and water sub-sectors, account for a significant proportion of the expected growth. Likewise, house building is expecting continued growth, thanks to higher house prices, coupled with continuing demand from first-time buyers making use of the government’s Help to Buy scheme.

The CPA explains

Noble Francis, Economics Director at the Construction Products Association gives his analysis: “Construction output has been sustained post-referendum, primarily due to projects signed up to before June 2016. Activity is expected to remain strong in the first half of this year in all the key construction sectors: private housing, commercial, industrial and infrastructure. Looking further forward, a fall in contract awards during the second half of last year is likely to impact greatest where Brexit uncertainty affects sectors requiring high investment up front for a long-term rate of return, such as commercial offices and industrial factories.

“We forecast that output in commercial offices will fall 1.0% this year and a further 12.0% in 2018. Industrial factories construction is expected to fall 5.0% in 2017 and 4.0% in 2018. However, this is expected to be offset by strong growth in infrastructure and private housing. Infrastructure construction is expected to increase by 7.3% in 2017 and 11.1% in 2018, primarily driven by major projects such as main works at Hinkley Point C and High-Speed 2. Private housing starts are forecast to rise 3.0% in 2017 and 2.0% in both 2018 and 2019.

“Looking forward, given the dependence of construction industry growth on activity in the infrastructure and private housing sectors, it is essential that government focuses on delivery of infrastructure projects in its National Infrastructure and Construction Pipeline. In addition, as major house builders are reliant upon Help to Buy equity loans, which are due to end in 2021, it is vital that government outlines its plans early to support house building growth as we approach the end of the scheme.”

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