A lack of certainty beyond the end of the Brexit implementation period from January 2021 means that construction output is expected to decline slightly in 2020 – before pickng up next year.
That’s the forecast from the Construction Products Association (CPA), which predicted a 0.3% drop in output this year, followed by a rise of 1.2% in 2021.
The CPA said political uncertainty and bad weather led to a slowdown towards the end of last year, but forecasts showed “little evidence” to suggest that the general election result would benefit construction this year.
That’s because while the election cleared up Brexit uncertainty in the near-term, uncertainty beyond January 2021 is making large-up-front investments difficult to justify in areas like prime residential, commercial offices and industrial factories, the CPA claimed.
It warned that those sectors have seen falls in new orders since the 2016 referendum result, which has now started hitting activity on the ground. Meanwhile, it predicted little in the form of new orders to replace projects completing in 2020. As a result, commercial offices and factories output is forecast to fall 4% and 10% 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.
Nonetheless, the CPA pointed to continued growth rates for the infrastructure sector, with major projects such as Crossrail, HS2, Hinkley Point C and Thames Tideway driving activity. The forecast also assumes that HS2 will not stop, despite a review into the project. “The political importance of infrastructure in the North since the election result should not be underestimated,” the CPA said.
Meanwhile, the construction of higher-value, automated warehouses continues to grow as well largely due to the wider structural shift towards e-commerce.
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.”
