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4 November 2019
www.acr-news.com
Continued uncertainty hinders construction
T
he Construction Products Association’s (CPA) Autumn Forecasts for construction output growth in 2020 and 2021 have been downgraded from 1.0% and 1.4% to 0.5% and 0.9% respectively from its summer forecasts. The downgrade reflects uncertainty around Brexit impacting investment in the commercial sector and delays in major infrastructure delivery. Slowing house price growth has also contributed to this more pessimistic projection.
In the private housing sector, starts are forecast to fall 2.0% this year given slowing house price growth and weaker demand in southern regions of the country, before returning to growth in 2020 as the economy settles and underlying demand for new build house purchases is enabled by Help to Buy. The public housing sector’s prospects are more positive due to grant funding on the Shared Ownership and Affordable Homes Programme, although there are signs of vulnerability as housing association development is increasingly linked to the slowdown in the general housing market. Brexit uncertainty is impacting on confidence in the commercial sector with a reluctance to invest in new offices until the UK’s relationship with Europe is made clearer and improves the outlook for long- term investment returns.
Despite delays on major projects, there are pockets of growth in infrastructure, however, with offshore wind projects receiving significant investment in activity.
An equally more positive outlook can be found in warehouses, which is a sub-sector forecast to increase by 15% in 2019 and 20% in 2020. Owing to the development of automated warehouses by online retailers which use higher-tech operations
in logistics, the scale and value of projects have increased. Growth in the sector is no doubt amplified by moves away from the high street, where retailers have been hit by higher business rates and rising wage costs.
Commenting on the Autumn Forecasts, the CPA’s economics director, Noble Francis, said: “Construction activity is expected to grow by only 0.5% during 2020, even assuming a smooth Brexit involving a deal or, more likely, another extension to Article 50. The uncertainty created over when and how the UK will leave the EU has affected new investment in parts of private housing and commercial, the two largest construction sectors. Add to this growing concerns about the government’s major project delivery and the next two years are expected to be challenging in spite of a raft of infrastructure projects in the pipeline and a strong latent demand for housing.
“Private housing starts are expected to fall by 2.0% this year before rising by 1.0% as falls in house building in London, the South East and East are expected to be offset by growth in the North West, Yorkshire and the Midlands. Commercial sector output is forecast to fall by 6.9% this year and a further 4.7% in 2020 as a lack of upfront investment in offices towers for a long-term rate of return is exacerbated by a continued decline in retail construction as spending shifts online. It’s certainly not all bad news, however, as infrastructure is forecast to rise by 11.2% this year and 3.7% in 2020 in spite of poor delivery of major projects. If government were able to improve its delivery of major infrastructure then this could drive strong increases in construction activity as well as boosting UK economic growth and productivity.”
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