UK construction industry faces weakest growth in six years

By Zoe Wood, on Aug 7 , 2017

[The Guardian] Slowing economy, falling wages and rising costs to hamper growth ahead of Brexit, Construction Products Association warns

The number of cranes needling Britain’s city skylines is often used as crude shorthand for the health of economy.

Economists at the Construction Products Association (CPA) see leaner times ahead for crane spotters as it predicts industry growth will drop to a six-year low ahead of Brexit.

“Construction firms are still reporting that activity remains high and there are still lots of cranes around,” said Noble Francis, the CPA’s economics director. “But there are clear signs that construction output is slowing and that next year in particular will be difficult for the industry.”

The CPA, which represents manufacturers and distributors of construction materials, said the combination of a slowing economy, falling real wages and rising costs would hamper the industry’s prospects in 2018. As a result its economists have lowered their growth forecast for next year from 1.2% to 0.7%, which would be the slowest in six years.

Storm clouds may be gathering over the sector, but there is currently plenty of work for builders and the CPA actually increased its growth forecast for 2017 from 1.3% to 1.6%. The activity was explained by a sharp rise in social housing repair and maintenance contracts in the wake of the Grenfell Tower fire.

The construction industry would be reliant on major infrastructure projects such as HS2 and the Thames Tideway tunnel, as well as private housebuilding over the next two years, the CPA said, which would help to offset a sharp fall in the commercial and industrial sectors. The government’s help-to-buy scheme has also underpinned housebuilding programmes with the policy due to run until 2021.

Help to buy is expected to fuel growth in private housing starts of 3% in 2017 and 2% in 2018, the CPA said, but this is slower than in previous years given uncertainties about the strength of consumer confidence and falls in real earnings.

Last week it was reported that help to buy could come to an end sooner, sparking a rout in housebuilders’ share prices. The scheme enables buyers to purchase new-build homes worth up to £600,000 with a 5% deposit. Analysts at the stockbroker Jefferies said they doubted the policy would be altered before 2021, but added: “If potential changes were flagged ahead of this then housebuilders would have time, if needed, to adjust their site phasing and product mixes across their sites.”

Francis said more than a third of new housebuilding was sustained by help to buy with that trend expected to continue over the next 18 months, provided the wider economy and housing market did not slow further. “Despite the slowdown in the general housing market, particularly in London, housebuilders continue to increase supply, albeit more slowly than in recent years,” he said. “However, if economic conditions do deteriorate further, housebuilders can react quite quickly if necessary.”

The CPA has pencilled in growth of 1.8% for 2019 but says the unprecedented economic and political uncertainties Brexit and the recent general election have created mean “risks around this forecast are considerable”.