UK construction market facing challenges

The UK’s construction output is forecast to increase by 5.5% in 2015, but faces challenges for the following two years, according to research from the Construction Products Association.

Dr Noble Francis, the Construction Products Association’s economics director, said that while there had been a slowdown in the general UK housing market, homebuilding had supported wider construction industry growth.

However, he warned that “the most uncertain General Election in more than 40 years”, which is being held next month, is likely to affect the construction sector – with delays predicted for future projects.

Despite the election uncertainty, the Construction Products Association has forecast that next year’s total UK construction output will be £133 (€184 billion), surpassing the pre-recession peak of £130 billion (€180 billion), recorded in 2007.

The Construction Products Association research comes as the latest Office for National Statistics (ONS) figures showed that in February 2015, construction sector output fell by 1.3% compared with February 2014. The results were also 0.9% down in comparison with January 2015.

According to ONS figures, all new construction in February 2015 decreased by 0.6%, with all types of new work reporting decreases for the month, except public new housing and other public works. Infrastructure fell 2.5%, private new housing decreased by 1.6%, the private industrial sector was down 0.9% and private commercial work fell by 0.1%.

However, when comparing the three-month period of December 2014 to February 2015 with the same three months a year earlier, construction output was estimated to have increased by 0.3%. All new work increased by 1.3%, while repair and maintenance decreased by 1.4%.

Dr Francis said the lag between construction contracts and work on the ground meant that construction activity in 2015 probably would not be impacted by the General Election uncertainty, since the majority of work for the year had already been planned.

He said, “Instead, we expect a break in private and public investment this year for future projects, which in turn will lead to slower construction growth of 4.0% in 2016 and 3.4% in 2017.”

He said that private house building rose 13.3% in 2014, and was forecast to increase 10% to 142,000 new homes this year.

According to Dr Francis, the commercial construction sector, worth some £22 billion a year (€30 billion), was forecast to rise 6.4% in 2015. He said this was because of work on major tower projects in London, and also large commercial construction schemes in Birmingham and Manchester.

Among the key forecasts from the Construction Products Association were predictions for private house building growth of 5.0% in 2016, and 3.0% in 2017.

Commercial construction is expected to increase 6.4% in 2015, 5.2% in 2016 and 4.4% in 2017. Meanwhile, infrastructure activity is forecast to rise 7.6% in 2015, 9.2% in 2016 and 10.6% in 2017.

The Construction Products Association research comes as a study from the NoPalaver accountancy group has reported a sharp rise in the number of UK construction businesses being set up.

According to its figures, 38,335 new companies started during 2013, recording an annual net increase of 5,445 businesses. This compared to 2012, in which 29,295 firms opened, leading to a net annual loss of 7,030 construction companies.

Overall, Dr Francis added, “The Construction Products Association forecasts construction output surpassing the pre-recession annual peak next year, and expects output in 2018 to be 17.9% higher than in 2014. For this to materialise, however, industry will need to work together with the new government to address the need for greater investment in capacity and skills.”