The Construction Products Association (CPA) predicts that construction activity will slow down over the coming months, despite strengthening infrastructure and warehouse activity.
The CPA expects output to rise by 2.5% in 2022 and just 1.6% in 2023. A slowdown in private housing plus falls in private housing repair, maintenance and improvement (rm&i) down from historic highs, are contributing to the lower forecast.
Warehousing and infrastructure solid
The industrial sector, which covers activity on warehouses and factories, is forecast to be the fastest growing sector in the next two years. Output is forecast to rise by 15.0% in 2022 and 9.8% in 2023, as activity continues to be boosted by the strength of online retailing as well as manufacturers’ need for increased stocks given the persistence of supply chain issues over the last two years.
Infrastructure, the second largest construction sector, will also be a key driver of growth, according to the CPA, with output expected to rise by 8.5% this year and 3.8% in 2023.
Long-term pipelines of work in regulated sectors such as roads, rail, water and electricity is predicted to drive growth. This is boosted further by major projects such as HS2, Thames Tideway Tunnel, and Hinkley Point C despite ongoing delays and cost overruns. However, medium-term, local infrastructure is likely to suffer from councils being financially constrained.
Central government projects will also be affected as there will be no further finance beyond November 2021’s Spending Review. This is despite an ambitious infrastructure pipeline and strong cost inflation.
Private housing remains cautiously optimistic as annual house price growth continues at double-digit rates and major house builders continue to stress the strength of the market. However, with the UK economy expected to contract in 2022 Q4, there remains uncertainty regarding how long housing can remain buoyant. The CPA anticipates that UK annual house price inflation will slow to 6.0% later this year and 2.5% in 2023 – as lower housing demand is partially offset by a lower supply of homes on to the market unless unemployment rises significantly and increases the number of forced sellers onto the market, supressing house prices. Near-term concerns for major house builders focus on mortgage availability after the end of Help to Buy in March 2023.
Other key issues for houses include planning and rising costs of materials, labour and meeting the new Building Regulations. Private housing output is forecast to rise by 1.0% in 2022 and remain flat in 2023. However, if house price inflation continues to surprise on the optimistic side and demand is enabled by high mortgage availability, risks may be skewed towards the positive.
Next 12 months crucial
CPA Economics Director Noble Francis reflected on the forecasts: “Construction activity currently on site is robust, higher than pre-pandemic. It is likely to remain strong near-term due to projects already signed up to, especially in the buoyant infrastructure and warehouses sub-sectors. However, construction is not immune to the effects of the wider economy. Over the next 12 months, the rapidly rising cost of living, the slowdown in economic growth and falls in consumer confidence and spending will undoubtedly impact on private construction investment going forward. In addition, rising labour and materials prices are likely to mean that the industry sees the value of output previously expected but not the volume. This is particularly the case for public sector construction in the longer-term, in which government departments and local authorities are likely to find themselves hamstrung by frozen budgets and rising construction costs.”
If you would like to read more stories like this, then please click here