Construction to dodge post-Brexit vote recession

Faltering commercial workloads will be offset by strong growth in infrastructure and school spending over the next two years, according to the latest major industry forecast.

Economists at the Construction Products Association said the industry will avoid a post-Brexit vote recession with slow growth of 0.2% and 0.3% this year and next.

The latest forecast is a sharp revision to the 3.6% predicted for 2017 and 2018 before the EU referendum.

While commercial office building is expected to be worst hit, strong growth is expected in infrastructure and education as the Government pulls the levers to keep the economy running.

Noble Francis, economics director at the CPA, said:  “Surveys across the industry highlight that activity in the construction sector has been sustained post-referendum, primarily based upon work on projects that were signed in the 12-18 months before the referendum. 

CPA construction forecasts highlights

• Construction output to rise 0.6% in 2016, 0.3% in 2017 and 0.2% in 2018
• Offices construction to increase 8% in 2016 before falling 3% in 2017 and a further 10% in 2018
• Factories construction to fall 5% in 2016 and 2% in 2017
• Infrastructure work to rise by 6.2% in 2017 and 10.2% in 2018
• Private housing starts to rise 2% but remain flat in 2017 and fall 2% in 2018
• Retail construction to fall 8.0% in 2016 before falls of 4% in 2017 and 2% in 2018

“Looking forward, projects in the pipeline mean that construction activity is likely to continue throughout the rest of 2016 and the first half of 2017, ” he said.

“From the second half of 2017, however, there is likely to be a clear division between the fortunes of privately-funded construction sectors where the current uncertainty is likely to have a major impact, and those that are largely unaffected by post-referendum uncertainty – such as infrastructure and education – which are either publicly-funded or in regulated sectors.”

Francis added that offices output is expected to decline 3% in 2017 and a further 10% in 2018.  Industrial construction is also expected to fall 11.6% between 2015 and 2018 as renewal and refurbishment of existing factories continues but large manufacturers make fewer new major investments.

But major projects such as HS2, Hinkley Point C nuclear power station and the Thames Tideway Tunnel are anticipated to provide growth of 6.2% in 2017 and 10.2% in 2018. 

Within education construction, activity is expected to rise 5.8% by 2018 due to public sector capital investment in the Priority School Building Programme and private sector investment in universities, including £1bn programmes at Manchester, Cambridge and Glasgow.

“Outside of these sectors, private house building has not been affected by the uncertainty so far and is expected to rise by 2.0% in 2016.  It is anticipated to remain flat in 2017 before a 2.0% fall in 2018 due to slower demand as UK economic growth and real wage growth both weaken considerably next year. 

“However, private house building could be boosted by new measures in the government’s Autumn Statement on 23 November.  The slower real wage growth in 2017, driven by higher inflation due to the recent falls in Sterling, is also expected to lead to a decline in retail construction of 4% in 2017 and 2% in 2018.  This in a sector already hit by the shift away from traditional retail towards online shopping.

“With an upcoming Autumn Statement, it is vital that the Chancellor focuses on reducing uncertainty for the private sector, sustaining the housing sector and ensuring delivery of education construction and major infrastructure projects already in the pipeline.”

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