Growth for the UK's
construction sector next year has been downgraded amid signs Brexit uncertainty
and on-going delays in the delivery of major infrastructure projects continue
to weigh on activity.
The Construction
Products Association’s Autumn Forecasts anticipate growth will remain flat in
2018, and rise by only 0.6% in 2019, a downward revision from its previous
estimate of 2.3%.
Despite a weakened
market, private housing continues to be a key sector of growth for the
construction industry, with first-time buyer demand enabled by the government's
Help to Buy scheme, encouraging activity.
Over the last 12
months, the equity loan accounted for almost one third of all housebuilding
sales, particularly sustaining demand for housebuilding in the North and
Midlands which has offset falls in London and the South East. The sector's
output is forecast to rise 5% in 2018 and 2% in 2019; however this assumes
government will extend funding for the scheme beyond 2021. Without an
extension, housing starts are expected to start declining from 2019.
The infrastructure
sector also remains a primary driver of growth for the whole construction
industry, with output forecast to hit a historic high of £23 billion by 2020,
driven by large projects such as HS2 and Hinkley Point C. However, there remain
concerns about government’s ability to deliver major infrastructure projects
without the cost overruns and delays seen recently on Crossrail. Caution
surrounds the forecast, and growth in the sector has been revised down to 8.7%
in 2019, from its previous forecast of 13%.
Brexit uncertainty
continues to drive expectations for the sharpest construction decline in the
commercial sector, particularly felt in the offices sub-sector. Investors have
signalled the uncertainty is too high to justify significant up-front investment
in new floor space for a long-term rate of return, and output is expected to
fall 10% in 2018 and a further 20% in 2019.
Noble Francis,
Economics Director at the Construction Products Association 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.
"Major
infrastructure projects are expected to drive industry growth in 2019 and 2020
but the £600 million cost overruns and nine-month delays to Crossrail add to
existing concerns about government's ability to deliver major projects and lead
to additional concerns about the delivery of already delayed projects such as
Hinkley Point C and HS2. As a result, we have had to significantly revise down
our construction forecasts for the infrastructure sector and overall.
"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."
