Construction forecast downgraded to lowest level in six years

Construction growth will drop to 0.7% in 2018, its lowest level in six years, according to the Construction Products Association (CPA). The CPA has downgraded its forecast, citing a slowing national economy, falling wages in real terms and rising costs as likely to put additional pressure on the construction sector.

Previously the CPA was predicting 1.2% growth in 2018. Current activity is high and output is expected to rise by 1.6% during 2017, a prediction recently revised upwards from 1.3%, but this is mostly due to infrastructure growth and the circa £6.9 billion of immediate remedial measures needed in the building sector after the Grenfell fire, the CPA says.

Increases in infrastructure activity and private housebuilding are expected to be the primary drivers of growth over the next two years, offsetting sharp falls in commercial and industrial sectors. Growth will come from major projects in rail and water and sewerage such as HS2 and the Thames Tideway Tunnel, with activity in infrastructure forecast to grow by 7.4% in 2017 and 6.4% in 2018. This would be higher, had the CPA not discounted Hinkley Point C from its 2018 forecast due to delays with the main works starting.

"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 will be difficult for the industry," said the CPA's economics director, Noble Francis.

"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."

Uncertainty continues to dog the infrastructure market due to concerns over rising costs and major project delays, despite recent positive announcements on HS2, Hinkley Point C and Heathrow. "There remains a high degree of uncertainty around infrastructure growth in the next few years. This infrastructure investment will be vital for the industry as a whole. Without it, total construction output would fall by 1.0% in 2018," Francis said.

The CPA's forecast is stronger at 1.8% for 2019, but risks around this prediction are 'considerable', it says, given economic and political uncertainties for the next two years as the UK approaches its exit from the EU steered by a government with a slim majority.