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Infrastructure growth underpins strengthened CPA forecasts

Construction industry growth forecasts up to 2019 have been revised upwards by the Construction Products Association in light of expected expansion of activity in the infrastructure sector. Output within key infrastructure sub-sectors of roads, rail, energy and water supply and treatment is expected to double between 2015 and 2019, boosted by major projects such as the Thames Tideway Tunnel, HS2 and Hinkley Point C nuclear power plant, the CPA says. Growth of 102% in infrastructure is expected to prop up a 21.5% rise in general levels of activity in the construction industry between 2015 to 2019.

The CPA is now predicting general construction activity will drop in 2016 from 3.9% to 3.6% due to a slow down in new project starts. Growth will return from 2017 it says, as major infrastructure projects such as HS2 get started. Electricity generation is expected to be the strongest sub-sector of infrastructure, growing by 163.8%, followed by roads (147%), water (97.2%) and rail (30.7%).

The CPA warns of some key caveats, however, due to threats to infrastructure growth from a deteriorating global economic picture, the EU referendum and skills shortages.

"These risks are currently causing concern in the short-term and could turn to reality and harm infrastructure growth significantly over the long term," says the CPA's economics director Noble Francis. "Increasing investment in infrastructure is expected to lead to output in the sector in 2019 worth £27.6 billion, 101.8% higher than in 2015, but uncertainty over global economic growth is currently a key issue and at the moment is affecting financial markets, especially with respect to China. Worsening of the economic environment in China or other emerging markets may have an adverse impact on UK economic and construction growth but it could also hinder investment.

"Another issue that mauy have a significant impact this year will be the EU referendum. No assumption has been made regarding the result but, in the months leading up to the referendum, uncertainty regarding the result could lead to a hiatus in investment in the UK as well as causing a slowdown in new orders or previously signed new orders being put on hold." 

Constraints to supply and project delivery due to skills shortages is potentially a greater threat, Francis says. The CPA’s forecast assumes that the skills are there to meet the needs of the projects in the pipeline and ensure the forecast growth is achievable.

"Issues regarding the availability and cost of skills have already been highlighted in private house building, where post-recession recovery has been most rapid. The key issue will be whether similar issues are felt in the infrastructure sector, given the rapid expansion that has been forecast. This could especially be the case in sectors like roads, where the growth Highways England anticipates is extremely ambitious or in the nuclear sector where we haven’t done a new nuclear power station since Sizewell B in 1995," Francis says. "So do we have the skills for Hinkley Point C and for this at the same time as Wylfa in Angelsey? Skills needs appear to be determined at the project or programme level but when these are occurring at the same time as other projects, are they still feasible?

 

Read Noble Francis' full analysis of the UK infrastructure sector's bright but risky future