Brexit uncertainty and infrastructure delays
Growth for the UK’s construction sector next year has been downgraded amid signs Brexit uncertainty and ongoing delays in the delivery of major infrastructure projects continue to weigh on activity, according to the Construction Products Association’s autumn forecasts, which anticipate growth will remain flat in 2018, and rise by only 0.6% in 2019 – a downward revision from its previous estimate of 2.3%.
Despite a weakened market, private housing continues to be a key sector of growth for the construction industry, with first-time buyer demand enabled by the government’s Help to Buy scheme, encouraging activity.
Over the last 12 months, the equity loan accounted for almost one third of all housebuilding sales, particularly sustaining demand for housebuilding in the north and Midlands which has offset falls in London and the south east. The sector’s output is forecast to rise 5% in 2018 and 2% in 2019. However, this assumes government will extend funding for the scheme beyond 2021. Without an extension, housing starts are expected to start declining from 2019.
The infrastructure sector also remains a primary driver of growth for the whole construction industry, with output forecast to hit a historic high of £23 billion by 2020, driven by large projects such as HS2 and Hinkley Point C. However, there remain concerns about government’s ability to deliver major infrastructure projects without the cost overruns and delays seen recently on Crossrail. Caution surrounds the forecast, and growth in the sector has been revised down to 8.7% in 2019, from its previous forecast of 13%.
Brexit uncertainty continues to drive expectations for the sharpest construction decline in the commercial sector, particularly felt in the offices sub-sector. Investors have signalled the uncertainty is too high to justify significant up-front investment in new floor space for a long-term rate of return, and output is expected to fall 10% in 2018 and a further 20% in 2019.
Noble Francis, economics director at the Construction Products Association said: “The forecasts assume that the UK and EU will agree a deal on Brexit towards the end of the year but the continued uncertainty over a ‘no deal’ Brexit has already had a big impact on construction new orders in construction sectors dependent on high upfront, often international, investment for a long-term rate of return.
“These include the construction of prime residential in London, industrial factories and commercial offices towers. Even if the UK government eventually agrees a deal with the EU on Brexit, construction output in all these sectors is expected to fall sharply during 2019 due to falls in new orders, which have already occurred in the past 18 months, feeding through to activity on the ground.”