UK construction growth continues despite risks

UK construction output is expected to grow by 0.8% in 2017, 0.7% in 2018 and 2.2% in 2019, according to the UK’s Construction Products Association (CPA).

Growth to 2019 is expected to be driven primarily by a 28% increase in infrastructure activity and a 6.1% increase in private house building, which would offset expected falls in commercial and industrial construction.

Noble Francis, economics director at the CPA, said, “Near-term prospects for construction appear bright with industry growth boosted by several new billion pound infrastructure projects across the country such as the Thames Tideway Tunnel, HS2 (high speed rail) and Hinkley Point C (nuclear power plant) and the government’s £23 billion (€27.11 billion) National Productivity Investment Fund.

"A rise in infrastructure output is expected to ensure positive growth for the construction industry overall if the government can ensure it delivers on its announcements."

House building is also expected to remain a key source of output growth, with private house building starts rising at 2% per year between 2017 and 2019.

Francis said, “Construction industry prospects should also be boosted by a positive outlook from major house builders, who appear willing to increase supply as they take advantage of rising house prices in an undersupplied market.

"The exception to this is the high-profile niche of prime residential in central London, where there is already an oversupply of properties and sharply falling prices, which we expect to persist over the next 12 to 18 months."

However, he warned, substantial risks to growth remained as the fall in the value of Sterling was leading to increased import and raw materials costs.

"On the demand side, while the uncertainty post-referendum has not impacted activity on site as yet, it appears to be affecting areas that require high upfront investment for a long-term rate of return such as commercial offices and industrial factories.

"Both have seen new contract awards fall and this is likely to feed through into falls in sector activity from the second half of this 2017.

“Despite these concerns, infrastructure and private housing are anticipated to ensure that the construction industry grows between 2017 and 2019, providing an extra £5.3bn of economic activity for the construction industry and wider UK economy.”

Other key results include infrastructure work to rise by 7% in 2017 and 10.7% in 2018; office construction to decline 3% in 2017 and 10% in 2018, and retail construction to fall 8% in 2016 before falls of 4% in 2017 and 2% in 2018.