Uncertain Times Ahead for the UK Construction Industry

Uncertain Times Ahead for the UK Construction Industry

16th August 2017

The latest forecasts by the Construction Products Association (CPA) are worrying for the construction industry as they reveal that growth prospects for the sector in 2018 have been downgraded as the UK prepares to leave the European Union (EU).  With output expected to decrease in the slowing economy, real wages are falling and the rising costs are having an adverse effect on the sector.  This has led to the slowest expected rise (0.7%) in six years which is down from 1.2% in previous forecasts.

An increase in private housebuilding and infrastructure activity are predicted to be the main drivers of growth in the coming two years – this should help to offset a sharp decrease in the industrial and commercial sectors.  The growth in infrastructure will be driven by major projects in rail and water and sewerage (such as the Thames Tideway Tunnel and HS2) with activity predicted to increase by 7.4% in 2017 and 6.4% in 2018.  This growth will rely on the delivery of these projects and the extent of the continuing delays to the main works at Hinckley Point C have led to it no longer being included in CPA forecasts.

The growth in the construction industry in 2018 will rely heavily on private housebuilding despite the fact that the sector is still reliant on Help to Buy equity loans to drive numbers in housebuilding.  This policy will be in place until 2021 and is expected to support the demand for new builds and drive growth in private housing starts of 3% in 2017 and 2% in 2018.  This is slower than in previous years due to the uncertainties about the strength of consumer confidence and falls in real earnings in recent years.

While construction companies are currently still reporting that activity remains high, there are clear signs that construction output is slowing down and that the coming year is likely to prove difficult and challenging for the industry as a whole.  Growth for 2019 is predicted to be 1.8% but this is a tentative figure, given the unprecedented current economic and political uncertainties following the lack of a significant majority for the UK government as the country prepares to leave the EU. 

Slowing economic growth in the UK as a whole, combined with a decrease in real wages on the one hand and steeply rising costs on the other have had a negative effect on construction here in the UK.  Despite the slowdown in the general housing market (particularly in London), house builders are continuing to increase supply, though more slowly than in recent years.  At present, more than a third of new house building activity is being driven by the government’s Help to Buy scheme and this is predicted to continue over the next 18 months as long as the wider economy and the housing market don’t experience a further slowdown.  However, if economic conditions deteriorate, house builders are likely to react quickly. 

An increase in investment in infrastructure is expected to be the key driver of any construction growth in the near future though concerns over rising costs and delays to major projects still cause uncertainty over growth in the coming five years.  Infrastructure investment is vital for the construction industry as a whole as without it, total construction output would fall by 1% in 2018.