The Construction Products Association’s (CPA) latest forecast estimates growth for the construction industry of 3.6% in 2016, which is a downward revision from the Autumn 2015 forecast of 3.8% primarily because of slower UK economic growth.
The forecast horizon remains positive, largely due to the inclusion of HS2 main works for the first time; however, risks that threaten construction activity have intensified, particularly from weakening global economic growth, the EU referendum and skills shortages.
Professor Noble Francis, CPA economics director, said: “The key fundamentals for the sector are generally positive and construction growth is set to be more balanced. Private housing work, especially in London and the South East, provided the majority of growth between 2012 and 2015. During this forecast period, however, all three of the largest construction sectors – private housing, commercial and infrastructure – are expected to drive industry activity.
Professor Francis noted that private housing stats are forecast to rise 5.0% in both 2016 and 2017 buoyed by a high latent demand for home ownership, which is enabled through rising mortgage lending and policies from government. On the other hand, public housing prospects continue to be poor. Housing associations will be adversely affected by a lack of funding as rental income will be hit by the extension of Right to Buy and cuts to social rent. Public housing starts are expected to fall a further 5.0% in 2016 and no significant growth is expected over the forecast period.
“There are significant risks to this forecast, however,” said Professor Francis. “First is the uncertainty regarding global economic prospects. The chief concern remains weakness in China and the effect it can have on other countries. Second is the EU Referendum, likely due this year. While we make no assumption about the result, we note the uncertainty around the issue is already affecting investment decisions. Third and perhaps of most importance for the industry is the urgent challenge around skills shortages. The availability and cost of skilled labour has clearly impacted the house building sector; the recovery in other sectors is already showing a similar vulnerability.”