The Construction Products Association’s Summer forecasts, published today, see the construction sector’s near-term growth prospects downgraded. Output is forecast to fall by 2.9% this year, steeper than the 2.2% contraction forecast three months ago and 2.1% at the start of the year.
The more negative outlook is primarily due to slowness of recovery in the two largest construction sectors, private housing new build and repair, maintenance and improvement (RM&I), being pushed back until the Bank of England begins cutting interest rate cuts and consumer confidence strengthens. In addition, increasing concerns about the potential impact of uncertainty around responsibilities throughout the whole construction supply chain from the Building Safety Act may also delay the delivery of some larger, high-rise projects, Construction Products Association(CPA) economists say.
The CPA’s Summer Forecasts for 2025 and 2026 remain unchanged, with growth of 2.0% forecast for next year and 3.6% the year after, but that is from a lower base point than previously imagined because 2024 will see a bigger fall than had been anticipated.
The CPA says that growth will come when the lagged impacts of lower interest rates combine with sustained real wage growth to improve consumer and business confidence. It also expected construction to get a boost as the new government develops its spending plans, bringing some economic and political certainty – but these forecasts were written before weekend press reports that chancellor of the exchequer is about to plug a £20bn black hole in public finances by scrapping, or postponing, the hospital building programme and major infrastructure schemes including the A303 Stonehenge tunnel and the Lower Thames Crossing. These CPA forecasts may already be out of date.
CPA head of construction research Rebecca Larkin said: “As the two largest sectors of construction account for over one-third of total output, the fortunes of private housing new build and RMI heavily influence overall construction performance. Activity in both has been held back by interest rates remaining at peak for longer than previously expected, which is delaying the recovery in housing market demand, new build sales and improvements spending that typically occurs after a house purchase. Interest rate cuts and a pickup in sentiment are expected to start in the second half of this year but, realistically, it will take until 2025 for the recovery to be felt more strongly.
“Off the back of the election there have been clear signs of intent from the new government, particularly around potential changes to planning policy to improve housing and infrastructure delivery. However, with little detail at this stage, it is difficult to see any near-term uplift, whilst long-running concerns over skills shortages and the loss of construction workers, which has worsened dramatically in recent years, present the biggest risk to longer-term growth.”
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