Lingering Brexit uncertainty holding back construction growth, says GlobalData

Now that the UK has left the EU, some of the uncertainty that has constrained new investment growth in the past two years has diminished, and with this GlobalData now forecasts that construction output growth in 2020 will be slightly better than previously expected, at 1.0%. However, lingering uncertainty over the conditions the UK will operate under outside of the EU when new arrangements come into force in 2021 is still a concern for investors, preventing a faster recovery in construction growth in the early part of the 2020–2024 forecast period.

Danny Richards, Lead Economist at GlobalData, said: “The commercial sector has been hardest hit by the uncertain outlook over the UK’s economy post-Brexit, with 2020 set to be another year of contraction in the value of construction works in this sector. In 2019 commercial construction output is estimated to have shrunk by 0.9%, with a drop of 1.8% projected for 2020.

“The recovery from 2021 onwards assumes a more certain view of the post-Brexit operating environment, but the upturn in new commercial buildings projects will not be rapid. The outlook for growth in total residential construction is also weak for the early part of the forecast period. In part reflecting uncertainty over Brexit, the value of new construction orders in the residential sector was down by 8.5% year on year in the first three quarters of 2019.”

Despite the uncertainty, infrastructure will remain a key source of growth in construction activity, supported mainly by large-scale investments in public works through government flagship programs.

Richards adds: “The forecast for infrastructure remains positive, reflecting the continued growth momentum in 2019 and the investment proposals from the Prime Minister Boris Johnson, following his election victory in December 2019. Following four years of decline, infrastructure construction growth jumped to an annual average of 11.5% in 2018-2019.”

In the forthcoming 2020 budget, the government is expected to pledge to disburse investment in infrastructure in the Midlands and the North over the five-year parliamentary term. This will include funding for the ‘Northern Powerhouse Rail’ project, and also additional funds to cover HS2, costs for which could rise significantly above the original £55bn budget.