2016 and beyond

As we begin 2016 the first statistics from the ONS suggest that the construction industry declined in November last year as output was subdued in the latter part of the year. It can, quite rightly, leave many with an interest in the health of the industry slightly perplexed when a short-term trend is highlighted, even though this may be at odds with what the actual situation is on the ground.

Summing up, 2015 appears to have been a year where growth in construction moderated from around 7% in 2014 down to around 4%. That sounds like an industry that is ticking along quite nicely. It is also encouraging that while private housing has been the major driver of growth in recent years, infrastructure contributed significantly to growth last year. That is good news not just for the construction industry but has an economic benefit in other sectors of the economy too. In addition, the pipeline of contracts in infrastructure is stronger than it has been in recent years.

The challenges in 2016 are most likely to come more from the supply side, with labour shortages in particular a concern for many in the industry

With the Thames Tideway Tunnel set to begin its main work phase next year and a series of London Underground capital works to take place, growth looks set to increase again. Private housing also remains strong with plenty of government-backed incentives set to boost new home construction this year. The downside risks on the demand side remain a comparatively smaller growth rate in the commercial sector with retail activity particularly subdued.

The challenges in 2016 are most likely to come more from the supply side, with labour shortages in particular a concern for many in the industry. This is not an easy situation to manage as it is not necessarily a case of simply attracting more workers; a career in construction has to be an attractive and secure option for people. Boosting apprenticeships is obviously important but support throughout a career is needed and in times where demand declines, as it inevitably will, continued support will be necessary. A comprehensive approach to fixing the supply side issues could be the difference between growth of 4% or 8% in 2016 and beyond.

Michael Dall is an economist at Barbour ABI