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Earlier Construction Growth Forecast Lowered

Forecasters have downgraded their earlier predictions for construction growth in 2015 and 2016 due to a reported slowdown in housing and commercial activity during the third quarter.

Despite the weaker forecast, contractors can still expect with reasonable certainty a rise of close to 20% in construction activity and output from 2015 to 2019. This growth will be driven by strong activity in the three biggest construction sectors: private housing, commercial, and infrastructure.

The Construction Products Association recently stated that industry output is now expected to go up by 3.6% in 2015, which is lower than the 4.9% growth expected last summer.

In 2016 the industry’s growth rate is expected to reach 3.8%, which is slightly ahead of the 2015 forecast but still lower than the 4.2% initially predicted.

The Construction Products Association’s economic director, Dr Noble Francis, said that the organisation remains positive about the construction industry’s prospects, and that the activity slowdown experienced in Q3 is expected to be only temporary.

Dr Francis said that the commercial sector is expected to grow throughout 2016, with an average high of 3.9% per year up to and including 2019. The primary driver is expected to be new offices construction, with growth in the capital as well as higher levels of activity in Birmingham and Manchester.

Retain construction is expected to rally but major supermarket chains have been consolidating their expansion plans, which will have a constraining effect on growth rates.

Infrastructure activity continues to do well, with sector output expected to grow an average of 11.2% per year between 2015 and 2019. The National Infrastructure Plan, worth £411bn, will support stronger activity levels.

Dr Francis commented that the roads and energy sub-sectors would yield the strongest returns, but work is expected to rise in all primary sub-sectors throughout the forecast period. These sub-sectors include roads, energy, rail, water and sewerage.

Growth has been forecast for private housing starts, with key house builders indicating that they want to build more homes over the next 12 to 18 months.

Help to Buy facilitates one-quarter of new build purchases and will keep demand levels high. Property prices continue to go up in most regions, particularly in London and the South East, confirming that demand shows no signs of slowing down.

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There is, however, an anticipated adverse effect on public housing, due to uncertainty and lack of funding caused by cuts to social rent and the extension of Right to Buy to housing associations. Consequently, public housing starts are expected to go down by 10% in 2015 and an additional 5% in 2016.

Dr Francis warned that growth prospects in construction remain optimistic, but there are considerable risks. There is a government focus on current spending instead of capital investment, and if the government cannot lower current spending as much as it expects to, there may be cuts to public construction projects as part of an effort to eliminate the public sector deficit. Concerns about skills shortages may also become more prevalent due to the forecast growth.

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