The Construction Products Association (CPA) has downgraded its forecast for construction growth in 2022 from 6.3% to 4.8% amid what it termed a “perfect storm” in the supply chain.
While the CPA upgraded its forecast for construction growth in 2021 from 13.7% to 14.3%, it warned that supply chain constraints are now expected to hinder growth over the remainder of the year and into next year.
It cited a combination of skills shortages, product availability and cost inflation, HGV driver shortages, the impacts of energy cost rises and delays at ports among the headwinds facing the industry in the coming months.
The CPA’s autumn forecasts show the infrastructure sector, which has been less affected by supply issues than other areas of construction, to be the key driver of growth for the year ahead. Growth will be driven by major projects such as the Thames Tideway Tunnel, Hinkley Point C and HS2. Infrastructure output is forecast to rise by 23.9% in 2021 and by 9.7% in 2022 as the sector reaches record levels due to main works on HS2.
Output in private housing is forecast to rise by 17% in 2021 and by 6% in 2022. However, the private housing forecast for next year is a downward revision from 8% forecast in the summer to reflect concerns about affordability and the sustainability of double-digit house price growth.
Meanwhile, in the private housing repair and maintenance sector, output is forecast to rise by 20% this year but remain flat, at a historically high level, in 2022. According to the Bank of England, households have accumulated £200bn of savings over the past 18 months since the initial lockdown began. Most small contractors have renovation projects lined up for the next six months. But the CPA warned that the capacity of small contractors is already being tested from skills and products shortages, while rising costs over the next six months may lead to more subdued consumer confidence later next year.
In the commercial sector, activity on the fit-out and finishing of new and existing offices, retail and leisure buildings, plus changes in use of existing commercial developments into residential and warehouses, remains strong.
CPA economics director, Noble Francis, said: “Demand continues to be remarkably strong across the construction industry but supply issues are hindering growth and will continue to do so in the medium term. The biggest impacts of the supply constraints are on the small construction firms. Large contractors and major house builders have a greater certainty of demand over the 12-18-month horizon and are better able to plan and purchase in advance as well as adjust to changing economic situations. Small firms, however, are more focused on flexibility and have less visibility over demand going forward. Plus, they have less ability and resource to plan and purchase in advance. They often turn up at builders merchants on the day to purchase what they need for that day or the next few days. As a result, it leaves their business more exposed to availability issues and their cash flow exposed to sharp rises in costs.”
