Construction sector forecast presents a mixed picture

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The Construction Products Association has revealed a mixed picture for the construction industry in 2017 and 2018 due to Brexit uncertainty

Construction sector activity faces uncertainty in the next two years, according to a new forecast. The Construction Products Association (CPA) revealed a mixed picture for the industry in 2017 and 2018 in its latest report, highlighting the difficulties ahead.

The forecast expects construction to rise 0.6 per cent in 2016, but only by 0.3 and 0.2 per cent in 2017 and 2018, respectively.

Tide to turn on output in 2017

Noble Francis, economics director at the CPA, said: “Surveys across the industry highlight that activity in the construction sector has been sustained post-referendum, primarily based upon work on projects that were signed in the 12-18 months before the referendum.

“Looking forward, projects in the pipeline mean that construction activity is likely to continue throughout the rest of 2016 and the first half of 2017.

“From the second half of 2017, however, there is likely to be a clear division between the fortunes of privately-funded construction sectors – such as commercial offices and industrial factories – where the current uncertainty is likely to have a major impact, and those that are largely unaffected by post-referendum uncertainty – such as infrastructure and education – which are either publicly-funded or in regulated sectors.

“In construction sectors that are likely to be affected by the uncertainty, new investment has already fallen sharply but the lag between new contract awards and activity on the ground means that the weakening in sector output is likely to occur from the second half of next year.”

Commercial and industry expected to see a decline in growth

The CPA warned it expects activity to remain fairly stagnant in the next two years, with commercial offices and industrial construction expected to fall but infrastructure and education set to grow.

According to the forecast, office construction will increase to 8.0 per cent in 2016, then decline by 3.0 per cent in 2017 before falling by 10.0 per cent in 2018. The construction of factories will start on a worse footing and is expected to drop 5.0 per cent this year and fall by 2.0 per cent next.

“Commercial offices output is expected to decline 3.0 per cent in 2017 and a further 10.0 per cent in 2018.  In the industrial factories sector, construction is expected to fall 11.6 per cent between 2015 and 2018 as renewal and refurbishment of existing factories continues but large manufacturers make fewer new major investments,” Noble added.

However, infrastructure is expected to do well, rising by 6.2 per cent next year and by 10.2 per cent in 2018. Theses figures are undoubtedly buoyed by government support for major infrastructure projects.

“Within sectors that are expected to be largely unaffected by uncertainty, infrastructure will be a key driver of construction activity.

“Major projects such as HS2, Hinkley Point C nuclear power station and the Thames Tideway Tunnel are anticipated to provide growth of 6.2 per cent in 2017 and 10.2 per cent in 2018.

“Within education construction, activity is expected to rise 5.8 per cent by 2018 due to public sector capital investment in the Priority School Building Programme and private sector investment in universities, including £1 billion programmes at Manchester, Cambridge and Glasgow.”

Private housing set to decline over the next two years

Additionally, the forecast also estimates that while private housing will see growth it will also decline in the next two years.

“Outside of these sectors, private house building has not been affected by the uncertainty so far and is expected to rise by 2.0 per cent in 2016,” Noble said.

“It is anticipated to remain flat in 2017 before a 2.0 per cent fall in 2018 due to slower demand as UK economic growth and real wage growth both weaken considerably next year.

“However, private house building could be boosted by new measures in the government’s Autumn Statement on 23 November.

“The slower real wage growth in 2017, driven by higher inflation due to the recent falls in Sterling, is also expected to lead to a decline in retail construction of 4.0 per cent in 2017 and 2.0 per cent in 2018.

“This in a sector already hit by the shift away from traditional retail towards online shopping.

“With an upcoming Autumn Statement, it is vital that the Chancellor focuses on reducing uncertainty for the private sector, sustaining the housing sector and ensuring delivery of education construction and major infrastructure projects already in the pipeline.”

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