2021 construction output expected to be 6.4% lower than pre-Covid levels

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Covid-19 construction industry
© Dumrongsak Songdej

Despite the government putting industry at the centre of its recovery plans, the full impact of Covid-19 is expected to spell uncertainty for the construction industry

According to the Construction Products Association’s (CPA) latest forecasting, changes to the UK economy brought on by the Covid-19 pandemic, and uncertainty around consumer confidence and unemployment rates, could prove significant to construction industry activity returning to pre-Covid growth rates.

Although activity on-site returned quicker than initially expected post-lockdown, the CPA Summer Scenarios still anticipates construction output in 2020 to fall by 20.6%. The worst affected sectors include private housing (-33%) and commercial (-29%).

The report suggests that returns to construction sites from mid-May were largely to drive completions on existing projects and refurbishments that couldn’t take place during the restrictions.

However, uncertainty remains around long-term demand and future orders given the state of the wider economy.

Priority for housing projects

Completions have been prioritised for housing projects since the easing of lockdown. This is due to the first phase of construction for Help to Buy requiring completion by 31 December, and a stamp duty holiday announced by the government.

Although the long-term confidence for new developments seems fragile with the prospect for rising unemployment and signs that lender appetite is worsening.

Shifts in consumer confidence due to the Covid-19 pandemic is also impacting the commercial sector. The sector is grappling with larger structural shifts towards e-commerce, accelerated by the shutdown of non-essential retail, as well as the potential shift towards homeworking, reducing the demand for city centre office developments and diverting retail spending further away from high streets to online.

‘Build, build, build’

Although the government promised £5bn of construction investment under the ‘New Deal’ with the slogan ‘build, build, build’, CPA points out that this was largely a re-announcement of existing budgets.

Therefore, it is likely the ‘New Deal’ will have little impact on boosting activity in the construction industry beyond what was already expected after the Covid-19 pandemic.

While measures in the chancellor’s recent Summer Statement could potentially have a significant impact on construction, the extent of this is still unclear given the lack of new funding and a lack of clear strategy on the implementation of the £2bn Green Homes Grant.

CPA’s economics director, Noble Francis, said: “The quicker-than-expected return to sites is certainly a positive sign, and evidence of the CPA’s main scenario of a ‘tick’ shape sharp recession and recovery, with coronavirus a temporary issue primarily affecting economic activity in the first half of 2020.

“While government plans for a £2bn Green Homes Grant is welcomed news for the industry, the key will be in the delivery of this policy, ensuring it provides long-term, patient finance rather than being spent quickly and thoughtlessly.

“While next year we anticipate construction output rising 18.0% overall, it is worth noting that this is compared with a low base of activity in 2020 and will still be 6.4% lower than pre-coronavirus levels.

“The delivery of major infrastructure projects will be crucial to growth in 2021, with activity on site less affected by social distancing and major projects like HS2 driving significant growth for the sector.”

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