The CPA downgrades construction output forecast

Construction output is forecast to fall from a record-high level and contract by 6.4% in 2023, according to the Construction Products Association (CPA)’s latest forecast. This is a downgrade from the fall of 4.7% which was predicted in the CPA’s last report. The decline is driven primarily by sharp falls in the two largest construction sectors – private new housing and private housing repair, maintenance and improvement (RMI) sectors, according to the CPA’s analysts, together with recent government announcements of delays to major infrastructure projects.

A wider recovery in economic growth in 2024 is expected to boost demand for both new-build housing and RMI activity, according to the CPA. Next year, total construction output is forecast to return to growth, rising by 1.1%.

Private housing is the sector forecast to experience the sharpest contraction in 2023, with a 17.0% fall in output. The forecast assumes a pickup beginning in the traditional spring selling season, with mortgage interest rates settling at current levels.

“Despite the improvement in the outlook for the UK economy compared to six months ago, the headwinds of falling real incomes and interest rate rises remain,” said Rebecca Larkin, the CPA’s head of construction research. “For construction, the most acute effects of this will be felt in the two largest sectors of activity and those that are most exposed to a slowdown in discretionary household spending: private housing and private housing RMI.

“The sharp falls that are forecast for housing in 2023 mean that overall, a construction recession will be unavoidable. However, it is important to emphasise that the starting point is a record-high level of activity, and the 6.4% contraction expected is smaller than during the construction recessions of 2008/09, 2012 and 2020.

“In previous years, infrastructure activity has helped cushion falls elsewhere but recent government announcements delaying HS2 work at Euston station and on major roads schemes including the Lower Thames Crossing have weakened the near-term growth prospects for the third-largest sector of construction. Unlike the relatively fast bounce back that is expected in housing in 2024, the prospect of delays leading to even greater cost overruns on large infrastructure projects poses a risk to longer-term activity. This shines a light on the government’s decision to keep capital spending budgets unchanged in cash terms from 2024/25.”

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