Total construction
output in Great Britain is forecast to experience a slight decline of 0.3% in
2020, before a rise of 1.2% in 2021 according to the Construction
Products Association’s latest Construction Forecasts.
Political
uncertainty and bad weather led to a slowdown in construction activity towards
the end of last year, but the forecasts show little evidence to suggest that
the General Election result will benefit the construction industry for the year
ahead.
Whilst last year’s
general election cleared up Brexit uncertainty for the near-term, certainty
beyond the end of the implementation period from January 2021 continues to make
large, up-front investments difficult to justify in areas such as prime residential,
commercial offices and industrial factories. These high value sectors have seen
falls in new orders since the 2016 referendum result, which has now started
hitting activity on the ground. With the pipeline of work diminishing, there’s
little in the form of new orders to replace projects completing in 2020.
The lack of clarity
on the UK’s long term trading relationship with Europe explains why commercial
offices and factories output is forecast to fall 4.0% and 10.0% respectively,
following two years of decline in both sub-sectors. In addition, falling house
prices in the south and softer growth in the north is affecting private house
builder appetite to start new developments. Changes to the Help to Buy scheme
from April 2021, which include restricting the scheme to first-time buyers and
introducing regional price caps, are also expected to shift new builds away
from higher value houses towards flats.
Despite an overall
decline for construction output, the CPA’s Forecasts also show continued growth
rates for the infrastructure sector, with major projects such as Crossrail,
HS2, Hinkley Point C and Thames Tideway driving activity. Despite the review into
HS2, work is already underway on initial contracts and the forecasts assume it
will not stop. Although significant cost savings are likely to be needed on the
project, the political importance of infrastructure in the North since the
election result should not be underestimated. The construction of higher-value,
automated warehouses continues to grow as well largely due to the wider
structural shift towards e-commerce. With the associated decline of the high
street, mixed-use developments led by a hotel or leisure facility with flats,
shops and offices are emerging as a focus for future developments in town
centres.
Commenting on the
Winter Forecasts, CPA’s Economics Director, Noble Francis, said: “Construction
activity has tailed off since last Summer with persistent rain affecting
external construction. The main issue, however, was uncertainty, which hindered
decision making, the signing of new contracts and new project starts on site.
“Looking at the year
ahead, growth prospects for construction are fragile. Whilst the short-term
certainty provided by a majority in the General Election does mean that
day-to-day consumer spending will continue and a few more projects are likely
to go ahead, further political and economic uncertainty beyond 31 December
remains problematic for investment and activity. This is a particular issue in
high value sectors such prime residential, office towers and factories, which
require certainty to justify investment and where new contracts often take
12-18 months to feed into activity down on the ground.
“Prospects remain
bright in areas such as warehouses and infrastructure. As ever though,
government delivery of major infrastructure projects will be key to the
fortunes of both the sector and the industry. Without this certainty,
infrastructure activity is expected to remain flat and total construction
output would be expected to fall by 0.9% this year.”
