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Five years of construction growth forecast, but risks remain

The construction industry will grow 23% by the end of 2018 and contribute £12bn to the UK economy over the next two years alone, according to the latest Construction Products Association Autumn Forecasts

Key highlights include:

  • construction output will grow 4.8% in 2014 and 5.3% in 2015;
  • private housing starts are expected to grow 18% in 2014 and 10% in 2015;
  • the private commercial sector is set to increase 3.7% in 2014 and 6.1% in 2015;
  • roads construction will rise 46.1% by 2018; and
  • energy infrastructure is anticipated to grow 118.2% by 2018.

Economics director Dr Noble Francis said:  “Our forecasts reflect a welcome, recurring theme as growth continues and begins to broaden. 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.

“Recovery is not a foregone conclusion, however, 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.”

Dr Francis added that 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 the Help to Buy scheme. 

The Association expects starts to rise 18% in 2014 and 10% in 2015. In order for such projections to be met, however, Dr Francis claims increased capacity is necessary, particularly from small and medium-sized companies of house builders. 

In addition, he said serious questions remained about affordability and higher mortgage repayment costs, together with uncertainty around the future of housing policies given the pending election. 

With this in mind, the Association predicts private housing growth will moderate in the longer term to 5% per year from 2016.

Commercial, the largest sector, is expected to benefit from a pick-up in consumer spending and business investment, which will drive growth in each year up to 2018. 

Output in the sector is forecast to reach £26.8bn in 2018, but this remains 16.6% lower than the pre-recession peak in 2008.

The Association also expects new offices construction will expand by 10% in 2014, 8% in 2015 and 7% in 2016. 

Dr Francis said the retail sub-sector remains exposed to the long-term trend away from the high street to online shopping, and previous peak output levels are unlikely before 2018. New large developments, however, should still support growth of 8% from 2015.

He concluded: “The Association’s central forecast estimates that construction output will rise 4.8% in 2014, a marginal change from the previous 4.7% estimate. Output is forecast to rise a further 5.3% in 2015, an upward revision from 4.8% growth in the our Summer Forecast due to the continued strength of the UK economy.”

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