Construction growth depends on on infrastructure and private housing according to materials producers.
The Construction Products Association (CPA) expects construction output to grow by 2019. But it said post-referendum uncertainty had affected commercial office development projects which require high upfront investment for a long-term rate of return.
It forecast that the industry would grow by 0.8% in 2017, 0.7% in 2018 and 2.2% in 2019.
The CPA said that while the forecast showed that growth would maintain its post-referendum momentum, the overall trends masked a considerable variations across the key construction sectors.
In particular, it said that growth to 2019 wold be driven by a 28% increase in infrastructure activity and a 6.1% increase in private housebuilding. This would offset expected falls in commercial and industrial construction.
“Near-term prospects for construction appear bright, with industry growth boosted by several new billion pound infrastructure projects across the country, projects such as the Thames Tideway Tunnel, High Speed 2 and Hinkley Point C and the government’s £23bn National Productivity Investment Fund,” said Construction Products Association economics director Noble Francis.
“A rise in infrastructure output is expected to ensure positive growth for the construction industry overall if the government can ensure it delivers on its announcements.”
Francis said that house building output is expected to rise at 2% per year between 2017 and 2019, but warned that this did not apply to prime residential property in central London.
“Construction industry prospects should also be boosted by a positive outlook from major house builders, who appear willing to increase supply as they take advantage of rising house prices in an undersupplied market,” he said.
“The exception to this is the high-profile niche of prime residential in central London, where there is already an oversupply of properties and sharply falling prices, which we expect to persist over the next 12 to 18 months.”
He said that despite growth in some sectors, this could be undermined by the fall in the value of Sterling which was leading to an increase in import and raw materials costs. He warned that although post-referendum uncertainty had yet to affect activity on site, it appeared to be affecting areas that need high upfront investment such as commercial offices and industrial factories.
“Both of these sectors 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,” he said.
“Despite these concerns, infrastructure and private housing are anticipated to ensure that the construction industry grows between 2017 and 2019, providing an extra £5.3bn of economic activity for the construction industry and wider UK economy.”
Key results from the CPA construction forecast includes:
- Construction output to rise by 0.8% in 2017, 0.7% in 2018 and 2.2% in 2019
- Infrastructure work to rise by 7% in 2017 and 10.7% in 2018
- Private housing starts to rise 2% per year in 2017 and 2018
- Offices construction to decline 3% in 2017 and 10% in 2018
- Retail construction to fall 8% in 2016 before falls of 4% in 2017 and 2% in 2018