CPA Downgrades Forecast

Author: ross sturley cimcig

The Construction Products Association has downgrades its forecast of industry growth to 0.7% next year compared to previous estimates of 1.2%.

The change is because of a combination of Brexit, the slowing economy, falling real wages and rising costs.

Output is still on course to rise by 1.6% this year – a revision upwards from 1.3% in previous forecasts.

This is partly due to a sharp rise from new contracts and activity in the £6.9 billion public housing repair, maintenance and improvements to deal with short-term measures in the wake of the Grenfell Tower fire.

An increase in infrastructure activity and private housebuilding are expected to be the primary drivers of growth over the next two years which will help offset a sharp fall in the commercial and industrial sectors.

Growth in infrastructure will be due to major projects in rail and water and sewerage such as HS2 and the Thames Tideway Tunnel, with activity forecast to grow by 7.4% in 2017 and 6.4% in 2018.

Growth will be reliant on delivery of these projects and the extent of the continued delays to main works at Hinkley Point C have resulted in it no longer included in the CPA forecasts.

Growth for the industry in 2018 will also be heavily reliant on private housebuilding with growth in private housing starts of 3.0% in 2017 and 2.0% in 2018.

Looking further ahead, growth for 2019 is projected to be 1.8%.

Noble Francis, Economics Director at the Construction Products Association said: “Construction firms are still reporting that activity remains high and there are still lots of cranes around.

“But there are clear signs that construction output is slowing and that next year, in particular, will be difficult for the industry.

“Prospects for construction have been adversely affected by slowing UK economic growth and falling real wages on one side and sharp rising costs on the other.

“A fall in new investment, especially where it is large international investment looking for a long-term rate of return, is forecast to lead to declines in the commercial and industrial sectors.

“Despite the slowdown in the general housing market, particularly in London, house builders continue to increase supply, albeit more slowly than in recent years.

“Currently, more than a third of new house building is being sustained by the government’s Help to Buy and should continue to do so over the next 18 months if the wider economy and housing market don’t slow further.

“However, if economic conditions do deteriorate further, house builders can react quite quickly if necessary.

“Increases in infrastructure investment are also expected to offset these declines and be the key driver of any construction growth going forward.

“However, concerns regarding rising costs and delays to major projects continue to dog the sector so there remains a high degree of uncertainty around infrastructure growth in the next few years.

“And this infrastructure investment will be vital for the industry as a whole.

“Without it, total construction output would fall by 1.0% in 2018.”

Forecasters at the Construction Products Association (CPA) predict industry growth of 0.7% next year compared to previous estimates of 1.2%.