Industry output to flatten out, says CPA

Construction output growth is set to flatten out over the next two years, growing just 0.3% next year and by 0.2% in 2018, according to the latest set of Construction Products Association (CPA) forecasts.

Industry output is on course to grow just 0.6% this year, the CPA said.

The CPA expects Brexit to lead to falls in activity in the office, retail and housing sectors over the next two years, although the body’s economists are forecasting strong growth in infrastructure and education.

The key sector results from the forecasts include:

• Offices construction to increase 8.0% in 2016 before a decline of 3.0% in 2017 and 10.0% in 2018
• Factories construction to fall 5.0% in 2016 and 2.0% in 2017
• Infrastructure work to rise by 6.2% in 2017 and 10.2% in 2018
• Private housing starts to rise 2.0% but remain flat in 2017 and fall 2.0% in 2018
• Retail construction to fall 8.0% in 2016 before falls of 4.0% in 2017 and 2.0% in 2018

Infrastructure is set for strong grooth, boosted by the green light for £18bn Hinkley Point C, while education spending will be boosted by the roll out of the second phase of the priority school building programme and university capital expenditure.

The CPA forecasts come after the first official ONS figures since the Brexit vote showed construction output fell 1.4% in the third quarter of this year.

The drop came after a marginal 0.1% fall in the second quarter. Output was also down 0.2% on the same period last year.

But the economy overall grew by 0.5%, beating economists’ predictions, powered by strong growth in the UK’s powerhouse services sector.

Noble Francis, economics director at the CPA, said construction activity had held up quite well after the referendum, but predicted that by the second half of next year the fortunes of the private and public sub-sectors would start to look very different.

He said: “From the second half of 2017 there is likely to be a clear division between the fortunes of privately-funded construction sectors – such as commercial offices and industrial factories – where the current uncertainty is likely to have a major impact, and those that are largely unaffected by post-referendum uncertainty – such as infrastructure and education – which are either publicly-funded or in regulated sectors.

“With an upcoming Autumn Statement, it is vital that the Chancellor focuses on reducing uncertainty for the private sector, sustaining the housing sector and ensuring delivery of education construction and major infrastructure projects already in the pipeline.”