Infrastructure growth expected to compensate for fall-offs in office and retail projects
Growth in the construction market is expected to slow down from the middle of this year as new contracts tail off amidst post-referendum uncertainty and cost rises, the CPA has predicted.
The association’s winter forecast says that while building sites have not been hit by post-Brexit referendum uncertainty, activity is expected to be hindered by the slowing UK economy.
The fall in new contract awards is expected to be particularly noticeable in sectors dependant upon high, up-front investment seeking long-term returns such as commercial offices and industrial factories, according to the CPA.
Overall, it predicts construction output will grow by 0.8% this year, then dip slightly to 0.7% in 2018 before rebounding to 2.2% in 2019.
But the forecast points to widespread variation across the industry.
Growth to 2019 is expected to be primarily driven by a 28% increase in infrastructure activity on the back of big ticket projects like HS2 and the Hinkley Point C nuclear power plant.
Expansion will also be buoyed by a steady 2% per annum increase in private house building over the next three years to 2019, according to the CPA.
Growth in these sectors will offset expected falls in commercial and retail construction. The volume of office projects is forecast to decline by 3% this year, then by 10% in 2018. Retail construction is predicted to fall by 4% in 2017 and 2% in 2018.
Noble Francis, economics director of the CPA, said: “The fall in the value of sterling is leading to increased import and raw materials costs.
“On the demand side, whilst 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.”
The publication of the winter forecast compunds the message from the CPA’s latest state of trade survey which shows that firms across the industry are cutting their growth projections for 2017 against a backdrop of rising cost pressures.
It shows that despite rising workloads and output over the final three months of 2016, rising costs – principally raw materials affected by the weakness of the pound- dampened growth projections.