Construction industry reliant on infrastructure and housebuilding to avoid declines in 2018

For most construction firms it will be difficult to escape the impact that subdued economic growth, rising inflation, and falling real wages will have on the industry over the next two years, according to the Construction Products Association (CPA).

In addition, negotiating unprecedented uncertainties as the UK leaves the EU is expected to result in little growth, with output expected to rise 0.7% in 2017 and remain flat in 2018.

The latest forecasts from the CPA come at a time where any growth at all will be reliant on government’s delivery of infrastructure projects. This is likely to have a profound effect on construction output, which, if not realised, would lead to an industry-wide decline of over 1.0% in 2018.

Infrastructure activity is forecast to grow 25.4% by 2019 and will be due to major projects in rail and water and sewerage such as HS2 and the £4.2 billion Thames Tideway Tunnel.

House building will continue to be a primary driver of growth, with private housing starts rising by 5.0% in 2017 and 2.0% in 2018. In 2017 Q2 the government’s Help to Buy equity loan accounted for 40% of new homes, and has been a significant policy for supporting building activity.

The additional £10 billion that government announced for the scheme in October will continue to sustain house building despite the slowdown in the general housing market.

The sharpest decline will be in the commercial sector, and particularly felt in the offices sub-sector as EU referendum-induced wariness among investors has led to a sharp fall in contract awards.

Office construction is expected to decline 5.0% in 2017, worsening to a 15.0% decline in 2018, and is likely to accelerate if it proves to be the case that the UK will not be part of the European single market, and financial services firms choose to transfer operations out the UK into other EU member states.