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Double Digit Growth Forecast for Construction

Construction output is expected to rise by 14% in 2021 and a further 6.3% in 2022, according to the Construction Production Association’s (CPA) summer forecast published last month.

Private housebuilding and infrastructure are the two areas acting as key drivers in construction growth for this year and next; however, the outlook for growth in the commercial sector remains subdued.

Noble Francis, Economics Director, CPA, said: “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.”

Mr Noble added that SMEs tend to purchase on the day at builders’ merchants; this is in contrast to bigger contractors and housebuilders, who tend to buy in advance as they have a pipeline of work.

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

The CPA also forecasts that housebuilding will rise by around 21% this year, and by another 9% in 2022, despite the tapering off of the stamp duty holiday and help-to-buy schemes. The outlook is also strong for housing outside the major cities, thanks to a shift in working patterns. This is likely to remain the case for the next six to nine months, according to housebuilders.

Changes in the way people are working due to the pandemic have impacted private housing repair in a positive manner, with maintenance and improvements being the quickest sector to recover. Output from March 2021 was 19.3% higher than pre-COVID, according to the Office for National Statistics (ONS). Most SME contractors are reporting projects lined up for at least the next six months.

Brokers Hank Zarihs Associates said development finance lenders have reported an increase in demand for construction loans and fast bridging loans to accommodate healthy order books.

Major projects such as the Hinkley Point C nuclear power station, 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% per cent to 23.4% 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.