Double-digit growth forecast for construction for 2021

Construction output is forecast to rise by 14% in 2021 and 6.3% next year, according to the Construction Products Association (CPA) summer forecast.

Private housebuilding and infrastructure are expected to be key drivers of construction growth in this year and next, although the outlook for the commercial sector remains subdued.

CPA economics director Noble Francis says: “The key constraint to our forecasts remains the cost and availability of imported products and skilled labour.

“The sharp recovery for both UK construction, and in places such as the US, has led to sharp cost increases and extended lead times for some key products such as paints and varnishes, timber, roofing materials, copper and steel. This is of concern particularly for SMEs, which account for 86% of construction employment.”

He adds that SMEs often purchase on the day at builders’ merchants, unlike larger contractors and housebuilders who can plan and buy in advance as they have a pipeline of work.

“This makes SMEs subject to greater issues if supply is limited or costs have risen significantly, particularly for firms working on fixed-price contracts,” comments Noble.

Major housebuilders continue to report demand in the housing market and house price inflation continues to be robust. The Nationwide Building Society’s index showed a year-on-year house price rise of 10.5% in July, with a month-on-month decrease of 0.5%.

Housebuilding set to boom in coming months

The CPA forecasts housebuilding starts will rise by 21% this year and a further 9% in 2022, despite the tapering of stamp duty holiday and help-to-buy schemes. The outlook is particularly strong for houses outside major cities, owing to shifts in working patterns, and is likely to remain so for the next six to nine months, according to housebuilders.

Changes in the way people work due to the pandemic have positively impacted private housing repair, maintenance and improvements, which has been the quickest sector to recover. Output in March this year was 19.3% higher than pre-COVID times, according to the Office for National Statistics. Most SME contractors are reporting projects lined up for at least the next six months.

Broker Hank Zarihs Associates says development finance lenders were reporting increased demand for construction loans and fast bridging loans to accommodate healthy order books.

Major projects such as the nuclear power station Hinkley Point C, the Thames Tideway tunnel, and the HS2 rail project are central to strong output in the infrastructure sector. The CPA has revised down its infrastructure forecast for 2021 from 29% to 24% growth but has upwardly raised its forecast for 2022 from 5.9% to 9.7%, owing to further delays and cost overruns on major projects.

Its summer forecasts also report an increase in client hesitancy to sign off medium-sized projects leading to a slowdown in the near-term pipeline for the sector.

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