The Construction Products Association have this week published their, much anticipated CPA Construction Forecasts (Summer 2018).
• Total construction to fall by 0.6% in 2018 before growth of 2.3% in 2019 and 1.9% in 2020
• Private housing starts to rise by 2.0% in 2018 and 2019
• Commercial offices output to fall by 20.0% in 2018 and by 10.0% in 2019
• Commercial retail output to fall by 10.0% in 2018 and remain flat in 2019
• Infrastructure construction to grow by 3.2% in 2018 and 13.0% in 2019
Clearly the first quarter of the year was difficult for the industry due to the demise of Carillion and the bad weather. Things improved markedly in the second quarter due to a catch-up in work as we would have expected but, overall, it’s mixed fortunes for contractors. On the positive side, house builders are keen on accelerating building rates outside of London and that is expected to offset sharp falls in house building in the capital.
Firms working on major infrastructure projects also have a lot of work in the pipeline. Infrastructure output is forecast to rise by 3% in 2018 and 13% in 2019. This growth is highly dependent on large projects such as HS2 and Hinkley Point C, the first of the new nuclear power stations but, as ever, there remain concerns about government’s ability to deliver infrastructure projects without the cost overruns and delays that we have recently seen on Crossrail and HS2 respectively.
On the negative side, the elephant in the room is clearly Brexit uncertainty, which has had a big effect on international investment, especially where it is high up-front investment for a long-term rate of return, which is now highly uncertain. It affects demand in sectors such as prime residential in London, commercial offices towers and industrial factories.
Overall in construction, there is forecast to be a slight fall in activity, of -0.6%, in 2018 after five consecutive years of growth. However, in 2019, we are anticipating of growth of 2.3% due to house building and infrastructure.
Negative: The CPA forecast assumes a successful completion of the withdrawal agreement so that the UK technically leaves the EU on 29 March 2019 and enters the implementation period
until 31 December 2020, during which trading conditions remain the same. A ‘no deal’ scenario, which would mean that UK trades on WTO rules from 29 March 2019 would be an economically damaging scenario for the UK.
Positive: Anecdotal indications from investors suggest that access to key funding is available so if government were able to reduce uncertainty, then there could be a significant upturn in UK capital, high-end residential and commercial investment.