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Double-digit growth predicted for construction in 2021

The construction industry will enjoy double-digit growth this year but will nonetheless struggle with supply and demand risks, the Construction Products Association (CPA) has predicted.

The CPA’s spring forecast said that construction had not been hit as hard by winter lockdown restrictions as it had been by the initial lockdown in the first half of 2020 but that it will be 2022 before the industry recovers the output lost in 2020 and returns to 2019 levels.

It also warned that there are “significant risks” to the recovery, including supply constraints for key imported products and uncertainty around demand for housing new builds and repair, maintenance and improvement works and commercial space.

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Construction output is forecast to rise by 12.9% in 2021 and 5.2% in 2022. The figures mark a change compared to the CPA’s winter scenario, which predicted 14% growth in 2021 and 4.9% in 2022. It said the downward revision to the growth forecast for 2021 reflected a higher base for construction output in 2020, with official data reporting a smaller fall than initially anticipated of 12.5% in 2020 compared to 2019. While the UK economy as a whole faltered in 2021 Q1 due to the impacts of the third national lockdown on the services sector that accounts for 81% of UK GDP, activity accelerated in construction in the first quarter of the year, although performance varied among its various sectors.

Infrastructure was least affected by the initial lockdown as it was easier to enact site operating procedures and other safety measures on large sites. In 2021, output is set to increase by 29.3%, reaching its highest level on record, driven by major projects such as HS2, as well as activity on long-term frameworks in regulated sectors such as water, roads, electricity and broadband.

Meanwhile, demand in private housing and private housing repair and maintenance is expected to remain strong thanks to extensions to the stamp duty holiday, Help to Buy and job support schemes.

CPA economics director Noble Francis said: “While outlook is largely positive, the recovery in commercial – the third-largest construction sector – is expected to be muted given a lack of major investment in new projects, particularly in central London. Questions remain over future demand of commercial space, particularly in offices and retail, which may be converted into residential or warehousing and logistics, if homeworking and online spending persists in the long-term.

“More notably, however, there are significant risks to the recovery in the form of supply constraints in terms of extended lead times and sharp rises in costs for vital imported products such as paints and varnishes, timber, roofing materials, copper, steel and polymers. This may hinder the ability of construction activity to increase in line with our forecast. Furthermore, concerns remain whether the high levels of demand for housing new build and RM&I can be maintained after the government stimulus and policy measures end on 30 September, particularly the furloughing and self-employment income schemes and stamp duty holiday.”