‘Brexit’ fears, global economic jitters and skills shortages blamed for latest drop

Heightened fears about the potential for the UK to leave the European Union, coupled with less than robust global growth and skills shortages, have prompted the Construction Products Association (CPA) to make fresh downward revisions to its construction output forecast for 2016.

Its new estimate points to growth of 3.0% for this year, down from a projected 3.6% in February and significantly below a summer 2015 forecast of 4.9%.

The CPA has today also revised its 2017 growth projection to 3.6%, down from the 4.1% it outlined in February.

CPA economics director Noble Francis said the latest downgrades reflected “growing risk”, but stressed the overarching output forecasts remained positive.

Sector-by-sector, projections for private housing growth remain unchanged at 5% for both 2016 and 2017, but while the CPA is sticking to its projection of a 7% growth in office construction for this year, the earlier-predicted 7% rise for 2016 has been revised down to 6%.

Retail construction is projected to contract by 1.0% in 2016, returning to growth of 2.0% in 2017. A reduction in demand for retail space was attributed to the growth of online-retail and of the UK’s main supermarkets shifting their focus towards convenience-store shopping.

The CPA projected a 10% increase in industrial warehouse construction in 2016 as part of growth connected with continued expansion in online shopping. It said the the sector set to increase by 23.6% over the next three-to-four years.

It also pointed to growth of 56.3% in the infrastructure sector by 2019, driven by HS2 and other rail projects, as well as roads and utilities work.

Francis added: “The months leading up to the EU referendum in June will inevitably see a drop off in investment as increased uncertainty leads nervous investors to adopt a ‘wait and see’ policy until the referendum is out of the way, which could have a significant impact on UK economic growth and the construction sector in particular.”

While Francis predicted a second-quarter dip in property transactions because of changes to Stamp Duty for second homes, he said major housebuilders were keen to take advantage of high demand for home ownership and the “government policies that attempt to deal with issues around affordability”.

On infrastructure growth, Francis said the UK’s “most pressing issue” was whether the wider construction industry was capable of dealing with concurrent double-digit growth in the infrastructure, commercial and private sectors.

“By 2019, total construction output is expected to be £20bn higher than in 2015, yet employment in the industry remains 324,000 lower than it was over seven years ago,” he said. 

“If the growth we have forecast is to be achieved then the serious issue of skills shortages needs to be addressed.”