The economic outlook: CSN 2018 - 2022
However, despite the uncertain economic and political climate, this report, the UK’s most comprehensive construction forecast, provides room for restrained optimism.
Although construction growth is, at 1.3%, down on the 1.7% we predicted in 2017, the fall is not dramatic when framed by the turbulent 12 months we’ve seen.
Encouragingly, growth looks more balanced and, vitally, sustainable. Last year, we suggested that construction was flying on one engine with infrastructure delivering most of the growth This year, although it’s still set to grow faster than other sectors, we are now expecting the housing sector to make a greater contribution.
Housing output, both public and private, is expected to grow by an annual average of 2.8% and 2.2% respectively. And the commitment to building significantly more homes and the greater role of building for renting should provide the stability that will give existing and new providers the confidence to do things differently.
And these will be important positive contributions at a time when other aspects of the economic environment are more challenging. For example, a weaker pound, stronger growth elsewhere and uncertainty around Brexit may all make it harder to attract and retain skilled workers from abroad.
Our wider research shows that profitability remains down against the long term trend; KPI data indicates average margins stuck at around 2.0%, and several of the industry’s largest contractors booking losses. While the recent, unfortunate liquidation of Carillion is hopefully not the sign of things to come, it illustrates the scale of challenges that construction faces and the importance of progressing the Sector Deal and improving productivity.
Looking further ahead, the terms of Britain’s Brexit deal will shape construction growth for many years to come. Since Britain voted to leave the EU many investors have been understandably cautious about committing to big, long-term projects, preferring to plan to a pre-construction point before releasing funds. This means that when the Brexit deal is complete we may see delayed construction projects given the go-ahead.
The terms of Brexit will also provide clarity on the role overseas workers may play in the long-term.
Forecasting events in the crucial year ahead is an extremely challenging task. The next 12 months may yet see a General Election or even another EU referendum.
For now, the UK construction sector can take reasonable comfort in the fact it has weathered a range of political, economic and market uncertainties in what has been an exceptionally testing period. We can hope that by this time next year we more certainty about the UK’s economic direction and future. But equally, important will be steps that as an industry, we take to shape our own destiny.