Construction Set for Growth Despite Supply Problems

IN ITS LATEST quarterly forecast, the Construction Products Association (CPA) forecasts that construction growth will be 4.3% in 2022, slowing to 2.5% in 2023 – compared to the 13.3% seen in 2021.

Housebuilding, the largest construction sector, is expected to remain buoyant while infrastructure will be the major driver for growth. Projects already underway in all sectors underwrite the forecast figures.

Product supply problems, a major challenge in 2021, have eased over December, but may still cause problems, particularly in the peak spring period and particularly for smaller building companies.

Construction Growth

Private housing is forecast to rise by 3.0% in both 2022 and 2023 following 17.0% growth in 2021. CPA suggests that the double-digit inflation in house prices will fall as the impact of the end of the stamp duty holiday and the further restriction of the Help to Buy scheme feeds through. The outlook for volume remains positive, with most house builders reporting strong near-term demand and profit margins.

CPA forecasts RMI output will remain flat at the historically high level reached with 17.0% growth last year. Rising renovation project costs and inflation are expected to slow down consumer spending on larger projects. UK households have built up £200 billion in savings from the past two years but rising costs may slow spending compared to 2021.

Infrastructure

CPA’s Winter Forecast indicates infrastructure will remain as the main driver for growth in 2022. This mirrors the Autumn Forecast which pointed to the 5-year spending plans in the regulated sectors of rail, water, roads, and energy, allowing the sector to maintain activity levels.

Key projects include the Thames Tideway Tunnel, Hinkley Point C and HS2. Project delays due to supply constraints could result in further work being pushed into 2023. The sector is still expected to rise by 9.7% in 2022 and 1.1% in 2023.

While supply issues have eased recently, the CPA still considers them to be the biggest challenge to growth. Questions over insufficient materials, products, labour, HGV drivers and imports will be at the forefront of industry minds. Supply availability is uneven, with smaller specialist subcontractors feeling the pressure more.

Noble Francis, Economics Director at the Construction Products Association

Noble Francis, CPA Economics Director, said: “House builders and main contractors are less affected as they have better visibility of medium-term demand and can plan and purchase well in advance; plus, they are the larger customers of the manufacturers, builders’ merchants and importers.

“Smaller firms, however, have found that availability issues have delayed projects and, consequently, revenue streams whilst sharp cost increases have hit margin, harming their viability even though they have strong workloads. Overall, the latest indications are that supply issues have eased recently, which is a positive sign, although it is still early in the year and before industry activity tends to ramp up in the spring.”

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