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Growth Continues In Construction

The CPA believes there are five years of construction growth but risks remain

 

According to the Construction Products Association’s (CPA) Autumn Forecasts, the construction industry will grow 23% by the end of 2018 and contribute £12 billion to the UK economy over the next two years alone.

Key highlights include:

 

  • Construction output will grow 4.8% in 2014 and 5.3% in 2015.
  • Private housing starts are expected to grow 18.0% in 2014 and 10.0% in 2015.
  • The private commercial sector is set to increase 3.7% in 2014 and 6.1% in 2015.
  • Energy infrastructure is anticipated to grow 118.2% by 2018.

 

“Our forecasts reflect a welcome, recurring theme as growth continues and begins to broaden,” said Noble Francis, Economics Director, CPA. “Short term activity is still led by private housing, infrastructure and commercial, and areas of public sector construction are showing the first signs of increasing strength. We believe the expansion will continue through 2018.”

However, Noble Francis went on to warn that recovery is not a foregone conclusion and several “important risks” remain, primarily around the strength of the UK and Eurozone economies, the policy outcomes following the 2015 General Election and the impact of any supply constraints such as the scarcity of labour and materials.

“The private housing sector’s rapid growth since early 2013 has been sustained by consistent levels of demand, the general UK economy’s return to health and government policies such as Help to Buy,” he noted. “We forecast housing starts to rise 18% in 2014 and 10% in 2015. In order for such projections to be met, however, increased capacity is necessary, particularly from small to medium enterprises (SMEs) house builders. In addition, there remain serious questions about affordability and higher mortgage repayment costs, together with uncertainty around the future of housing policies given the pending election. With this in mind, we forecast private housing growth will moderate in the longer term to 5% per year from 2016.”

The commercial sector – the largest in the market – is expected to benefit from a pickup in consumer spending and business investment and cause growth in each year up to 2018. Output in the sector is forecast to reach £26.8 billion in 2018, but this remains 16.6% lower than the pre-recession peak in 2008.

The new build market for offices is one sub-sector of commercial where demand is intensifying in regions beyond London and the South East. The CPA predicts new offices’ construction will expand by 10% in 2014 and 8% in 2015, followed by 7.0% in 2016.

Other commercial sub-sectors also show signs of strength. The retail sub-sector remains exposed to the long term trend away from the high street to internet shopping, and previous peak output levels are unlikely before 2018, but new, large developments should still support growth of 8.0% from 2015.

Government austerity drives in the previous three years has meant that public sector construction has severely hindered overall construction recovery. In 2013/14, however, the CPA stated the ‘nadir of capital investment falls’ had been reached and consequent rises in funding for schools and hospitals are expected to lead to public sector construction growth averaging 2.6% per year between 2015 and 2018.

 

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