Crucial winter ahead for construction

Construction output is expected to fall by 14.5% in 2020, according to a recently published scenario from the Construction Products Association (CPA), which also suggests “promising signs of recovery from the coronavirus pandemic”.

Demand for new private housing and private housing repair, maintenance and improvement, as well as strong growth in the infrastructure sector, are expected to support recovery for the industry towards the end of this year and into the next following historic falls in output during lockdown.

The prospects, however, of both a deterioration in labour market conditions, along with a potential no-deal Brexit at the end of December, mean that winter 2020 will be decisive for how far such a recovery can be sustained, the CPA said.

The CPA’s Autumn Scenarios continue to expect a tick-shaped economic recovery as the most likely outcome, with output for construction rising by 13.5% in 2021 from the sharpest fall on record in 2020. The easing of lockdown measures over the summer was accompanied by a rush to meet pent-up demand, particularly in private housing and refurbishment work that couldn’t take place as sites were closed. With social distancing integrated on construction sites, productivity was also able to pick up.

The CPA pointed out that the housing market is being given a boost from pent-up demand coming through and transactions being brought forward by both the stamp duty holiday and the end of the first phase of Help to Buy in March 2021. Equally, private housing RM&I has benefited from home working brought on by the pandemic. With more disposable income as a result of spending less on travel and hospitality, many households are choosing to spend it on ‘safe’ options such as home improvements.

Some caution remains from 2021 Q2, however, with the end of the stamp duty holiday and uncertainty in the employment market possibly reducing demand.

“The key risks to the construction industry remain a potential second national lockdown and a no-deal Brexit, which are illustrated in the CPA’s other scenario,” CPA’s economics director Noble Francis said. “Either would lead to a second dip in the UK economy and construction output.

“A free trade deal agreed in principle with the EU, with the details determined over time, would at least give some degree of confidence for what is still a fragile economic recovery.”