Construction Expected to Drop by Fifth Despite Promises to ‘Build, Build, Build’

POTENTIAL STRUCTURAL changes to the UK economy brought on by the pandemic, as well as uncertainty around consumer confidence and unemployment rates, could prove significant to construction activity returning to pre-Covid growth rates.

The full impact of Covid-19 on the UK economy is expected to spell uncertainty for the construction industry, according to the Construction Products Association’s (CPA) latest forecasting.

Despite activity on site returning slightly quicker than initially expected post-lockdown, the CPA Summer Scenarios still anticipates construction output in 2020 to fall by 20.6%. The worst affected sectors include private housing (-33%) and commercial (-29%).

The CPA report points out that returns to construction sites from mid-May were largely to drive completions on existing projects and pent-up demand for refurbishments that couldn’t take place during the restrictions.

Uncertainty still remains around longer-term demand and future new orders given the state of the wider economy.

Housing 

For housing projects, completions have been prioritised since the easing of lockdown due to the first phase of construction for Help to Buy requiring completion by 31 December, and a stamp duty holiday announced by the government.

Long term confidence for new developments, however, seems fragile with the prospect for rising unemployment and signs that lender appetite is worsening.

Consumer confidence is equally affecting the commercial sector, which is also grappling with larger structural shifts towards e-commerce, accelerated by the coronavirus shutdown of non-essential retail. The potential shift towards homeworking also reduces demand for city centre office developments, diverting retail spending further away from high streets to online.

New Deal Repeat

The CPA Scenarios point to these larger shifts in the UK economy as crucial to the construction industry’s fortunes. They point out that the £5 billion ‘New Deal’ of construction investment announced under the government slogan ‘build, build, build’, was largely a re-announcement of existing budgets.

As such, the ‘New Deal’ will have little impact on boosting construction activity beyond what was already expected. While measures in the Chancellor’s recent Summer Statement could potentially have a significant impact on construction, the extent of this is still unclear given the lack of new funding and a lack of clear strategy on the implementation of the £2 billion Green Homes Grant.

Noble Francis, Economics Director at the Construction Products Association

The CPA’s Economics Director, Noble Francis, said: “The quicker-than-expected return to sites is certainly a positive sign, and evidence of the CPA’s main scenario of a ‘tick’ shape sharp recession and recovery, with coronavirus a temporary issue primarily affecting economic activity in the first half of 2020.

“When social distancing eased in mid-May, sustained UK economic recovery from June was enabled as services that involve person-to-person interaction gradually opened.

“There still remains a significant number of long term uncertainties for the UK economy though, including: unemployment rates as furlough comes to an end, the uptake of homeworking, the potential of a second wave of infection, and, of course, the end of the Brexit implementation period in December.

“While government plans for a £2 billion Green Homes Grant is welcomed news for the industry, the key will be in the delivery of this policy, ensuring it provides long-term, patient finance rather than being spent quickly and thoughtlessly.

“While next year we anticipate construction output rising 18.0% overall, it is worth noting that this is compared with a low base of activity in 2020 and will still be 6.4% lower than pre-coronavirus levels. The delivery of major infrastructure projects will be crucial to growth in 2021, with activity on site less affected by social distancing and major projects like HS2 driving significant growth for the sector.”