The Construction Products Association’s spring forecasts, out today, predict a slightly bigger fall in output this year than it previously thought, and a slightly bigger return to growth next year.
Economists at the Construction Products Association (CPA) predict that output will fall by 2.2% this year. In its last quarterly forecasts, in January 2024, the CPA was forecasting a 2.1% decline for this year.
The downgrading from 2.1% to 2.2% is attributed to a weak start to the year following heavy rainfall.
However, growth will return in next year, the CPA predicts. Its forecast for 2025 has been improved modestly from 2.0% three months ago to £2.1% today.
And looking ahead to 2026, further growth of 3.6% is forecast.
For the different sectors of the industry, however, experiences are bound to vary.
In private housing, the largest construction sector, mortgage approvals and property transactions have begun rising from the low of last year and the increasing prospect of interest rate and mortgage rate cuts heading into summer has underpinned increased optimism in recent months. Nevertheless, this is unlikely to translate into a pick-up in house-building overall this year, given that output in the first quarter was significantly lower than a year earlier. The CPA forecasts that output will fall 5.0% in 2024, with stronger UK economic growth, combined with real wage increases and lower mortgage rates driving a return to growth of 5.0% in 2025.
Contractors working in private housing repair, maintenance & improvement (RMI), the second-largest construction sector, also continue to face a subdued environment. Output is expected to fall by 4.0% in 2024, as continued strength in energy-efficiency retrofit and solar photovoltaic work – bolstered slightly by government programmes – only partially offset a drop in large home improvements spending and a double-digit drop in planning approvals in 2023 that signals a smaller near-term pipeline of projects. A recovery in line with a broader pick-up in macroeconomic conditions is forecast to begin from 2025.
For building firms operating in the commercial sector, refurbishment and fit-out continue to enjoy strong levels of activity, but overall commercial sector growth is only expected to turn positive until 2025, when confidence improves enough to proceed with large office towers and leisure/entertainment projects that are currently on pause due to the rise in construction costs and financing costs, the CPA predicts.
In civil engineering and infrastructure, major projects such as HS2 and Hinkley Point C are driving current high levels of activity, with additional uplift from 2025 expected due to offshore wind, National Grid upgrades and airport expansions.
CPA head of construction research Rebecca Larkin said: “Almost all sectors of construction had a bad start to the year with persistent rainfall delaying work on site, especially outdoor work. Whilst we may see a degree of catch-up activity as the weather improves, smaller sites are likely to see work simply pushed back due to capacity constraints. Of more concern to the industry’s near-term prospects is the sharp drop-off in activity in its two largest sectors, private housing new build and private housing RMI. With both sectors forecast to contract this year, the key question remains how quickly and how effectively expected cuts in interest rates can stimulate the economy and housing market as well as how quickly they can restore house builder confidence to resume activity and spark homeowners’ appetite for large improvements projects.
“The forecasts anticipate a return to growth of 2.1% in 2025 and further growth of 3.6% in 2026, although clearly there is greater uncertainty around activity in 2026 given the potential for a new government resulting from a general election this year. The impact this could have on public sector spending plans and the longer-term delivery of infrastructure and public sector projects present the longer-term opportunities, and risks, for construction.”
