Uncertainty holding back investment

Total construction output in Great Britain is forecast to experience a slight decline of 0.3% in 2020, before a rise of 1.2% in 2021 according to the Construction Products Association’s latest construction forecasts.

Political uncertainty and bad weather led to a slowdown in construction activity towards the end of 2019, but the forecasts show little evidence to suggest that the general election result will benefit the construction industry for the year ahead.

While last year’s general election cleared up Brexit uncertainty for the near-term, certainty beyond the end of the implementation period from January 2021 continues to make large, up-front investments difficult to justify in areas such as prime residential, commercial offices and industrial factories, the CPA said. These high value sectors have seen falls in new orders since the 2016 referendum result, which has now started hitting activity on the ground. With the pipeline of work diminishing, there’s little in the form of new orders to replace projects completing in 2020.

The lack of clarity on the UK’s long-term trading relationship with Europe explains why commercial offices and factories output is forecast to fall 4.0% and 10.0% respectively, following two years of decline in both sub-sectors. In addition, falling house prices in the south, and softer growth in the north, is affecting private house builder appetite to start new developments. Changes to the Help to Buy scheme from April 2021, which include restricting the scheme to first-time buyers and introducing regional price caps, are also expected to shift new builds away from higher value houses towards flats.

The CPA’s forecasts also show continued growth rates for the infrastructure sector, with major projects such as Crossrail, HS2, Hinkley Point C and Thames Tideway driving activity.

CPA’s economics director Noble Francis said: “Looking at the year ahead, growth prospects for construction are fragile. While the short-term certainty provided by a majority in the general election does mean that day-to-day consumer spending will continue, and a few more projects are likely to go ahead, further political and economic uncertainty beyond December 31 remains problematic for investment and activity. This is a particular issue in high value sectors such prime residential, office towers and factories, which require certainty to justify investment and where new contracts often take 12-18 months to feed into activity down on the ground.”