Post-Brexit uncertainty clouds construction forecast

There’s a mixed picture for the construction industry over the next two years because of uncertainty following the EU referendum, according to the latest forecast from the Construction Products Association.

Overall, construction activity is expected to remain broadly flat in 2017 and 2018. But this masks a more nuanced picture at the sector level, with growth in infrastructure and education offsetting falls in activity in sectors such as commercial offices and industrial factories.

Economics director Noble Francis says: “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. 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.

“From the second half of 2017, however, there is likely to be a clear division between the fortunes of privately funded construction sectors – such as commercial offices and industrial factories – 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.

“In construction sectors that are likely to be affected by the uncertainty, new investment has already fallen sharply. But the lag between new contract awards and activity on the ground means that the weakening in sector output is likely to occur from the second half of next year.

“Within sectors that are expected to be largely unaffected by uncertainty, infrastructure will be a key driver of construction activity. Major projects such as HS2, Hinkley Point C nuclear power station and the Thames Tideway Tunnel are anticipated to provide growth of 6.2 per cent in 2017 and 10.2 per cent in 2018. Within education construction, activity is expected to rise 5.8 per cent by 2018 due to public sector capital investment in the Priority School Building Programme and private sector investment in universities, including £1 billion programmes at Manchester, Cambridge and Glasgow.

“Outside 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 per cent 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 4.0 per cent in 2017 and 2.0 per cent in 2018.”