UK growth up to 2017

Growth in the UK’s private house building, infrastructure work and commercial activity are set to drive recovery in the industry over the next four years, according to the Construction Products Association’s latest forecast.

The UK association is expecting construction output to rise by 3.4% in 2014 and by a further 5.2% in 2015.

This growth is projected to continue through till 2017. However, it added that considerable uncertainties remained regarding the long-term sustainability of the recovery in the industry and wider economy in the latter years of this forecast, after 2015.

Dr Noble Francis, economics director of the Construction Products Association, said, “The construction industry is in a very different place to just one year earlier, when output fell to a level 15.4% below its pre-recession peak.”

He said that since the first quarter of 2013, activity had picked up considerably.

“Initially, this was due to a rapid expansion in house building, but more recently growth in new infrastructure and a recovery in London commercial activity have supplemented further rises in private housing,” he said.

“Private housing has seen a rapid recovery, albeit from levels of house building that are half the number needed to meet the number of households created. This private housing growth has been driven by wider economic recovery and government’s Help to Buy policy.”

Dr Francis said that initial concerns had been that this policy would fuel house price inflation, “but clearly both house prices and house building have risen significantly. Housing starts in Great Britain during 2013 are estimated to have increased 24.0%, and further growth rates of 16.0% in 2014 and 10.0% in 2015 are forecast.”

He went on, “After 2015, without Help to Buy to support housing market demand, there are strong concerns about whether house building will continue to improve despite the clear need for new housing.”

He said that it was a consequence of this that the association’s forecasts expected the growth in private housing to start slowing in 2016.

“In the second half of 2013,” he said, “the infrastructure sector was a key driver of construction growth, with output in the sector forecast to increase 39.7% by 2017. This growth is primarily expected from a recovery in the roads sub-sector, where output fell by over 50.0% in the space of two years, combined with further growth in rail construction.”

In the medium-term, from 2015, infrastructure was also expected to be supported by double-digit growth in the energy sub-sector as a result of the main works on the first of the new nuclear reactors at Hinkley Point C in Somerset, south west England.

However, he pointed out that the project had already been subject to considerable delays so further delays could not be discounted, which would hinder infrastructure growth in the longer term.

“Output in the largest construction sector, private commercial, fell 33.1% between 2008 and 2012. In 2013, however, major office projects in London have proved sizeable enough to start a recovery in the sector. The sector is expected to grow 2.7% in 2014 following growth of 2.4% in 2013.

He felt that from 2015, wider economic recovery and a rise in demand for prime office and retail space outside London and the south east of England should also boost the sector.

The largest constraint to industry recovery, he said, continued to be public sector construction. Public non-housing output fell 27.2% between 2010 and 2012, and he said the sector was not expected to recover until the impacts of capital investment growth fed through in 2015.