Is construction pushing the economy higher

I read a statistic this week  that the construction industry is forecast to grow by as much as 23% by 2018 – a whopping £12bn contributed to the UK economy. But in stark contrast, the number of profit warnings for construction companies is on the increase – which point is right? Well I think they both are.
The Construction Products Association’s (“CPA”) autumn forecast, published in October 2014 highlights a number of areas for growth:

·         Road construction to increase due to Highways Agency’s capital funding increase;

·         Rail output growth for a couple of years before tailing off; and

·         Infrastructure spend to grow.

So here is the disconnect, we hear construction industry and assume a building yet the industry covers a wider array than just the latest office block. Take the M1, we’re all enduring 50 mph yet the people behind the ongoing work are in the construction industry.

I recently discussed the perfect storm in the property market, yet despite the scarcity of labour and materials it is now widely accepted that if you weather this storm the growth is yours to take. A bit like 2008, those businesses that survived the recession came out in a much better financial position – what’s another year or so.
The growth, as well as the points made by the CPA, comes from:

·         Garden cities: Appropriate sites are being identified and I expect post-election plans will be put in place for a significant number of developments, with the Lyons Review noting 500,000;
·         Planning permissions: Improvements to the system will allow for a quicker turnaround on future housing and development – this will bring forward a number of schemes; and
·         Affordable housing and other incentive schemes: A wider push to keep housing affordable or financing accessible will keep the market moving.

So I come back to the start. A number of profit warnings – this reflects those businesses unable to adapt quickly to changes in market conditions. This is not always their fault but a market that is new to all. To me 23% growth feels high and with so many variables it is difficult to see how it can be achieved but look at the potential for the future which clearly points towards growth in the sector.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend,

Lee

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