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Full construction recovery will take a further year, says CPA

Double digit growth is expected for the UK construction industry this year, although it may take until next year before the industry recovers the output lost in 2020 and returns to 2019 levels, according to the latest forecast from the Construction Products Association.

Construction activity continued throughout the first quarter of 2021,and, because the entire construction supply chain was permitted to operate during the winter lockdown, activity was not hit as hard compared to the initial lockdown in the first half of 2020.

Big infrastructure sites have been able to manage social distancing during the pandemic than smaller operations.

Construction output is forecast to rise by 12.9% in 2021 and 5.2% in 2022 compared with 14.0% in 2021 and 4.9% in 2022 in the CPA’s winter main scenario. The downward revision to the growth forecast for 2021 reflects a higher base for construction output in 2020, with official data reporting a smaller fall than initially anticipated of 12.5% in 2020 compared to 2019. The UK economy faltered in 2021 Q1 due to the impacts of the third national lockdown on the services sector that accounts for 81% of UK GDP. For construction, however, activity accelerated in the first quarter of the year, although the story varies amongst its various sectors.

The CPA also highlights significant risks to the construction sector’s recovery from 2021, including supply constraints for key imported construction products and uncertainty around demand for housing new builds, and RM&I and commercial space.

Infrastructure was least affected by the initial lockdown as it was considerably easier to enact site operating procedures and other safety measures on large sites. In 2021, output is set to increase by 29.3%, reaching its highest level on record.

Extensions to the stamp duty holiday, Help to Buy and job support schemes are expected to help sustain demand in private housing and private housing rm&i. Private housing, which was the worst-affected construction sector in the initial lockdown is expected to continue its strong recovery in 2021 with the Chancellor’s mortgage guarantee scheme likely to enable demand in the general housing market. Coupled with expectations of rising house prices during the year, starts activity is forecast to gather pace in 2022.

CPA Economics Director Noble Francis, said: “Whilst outlook is largely positive, the recovery in commercial – the third-largest construction sector – is expected to be muted given a lack of major investment in new projects, particularly in Central London. Questions remain over future demand of commercial space, particularly in offices and retail, which may be converted into residential or warehousing and logistics, if homeworking and online spending persists in the long-term.

“More notably, however, there are significant risks to the recovery in the form of supply constraints in terms of extended lead times and sharp rises in costs for vital imported products such as paints and varnishes, timber, roofing materials, copper, steel and polymers. This may hinder the ability of construction activity to increase in line with our forecast. Furthermore, concerns remain whether the high levels of demand for housing new build and rm&i can be maintained after the government stimulus and policy measures end on 30 September, particularly the furloughing and self-employment income schemes and stamp duty holiday.”

 

About Fiona Russell-Horne

Fiona Russell-Horne
Group Managing Editor across the BMJ portfolio.

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