Construction output is forecast to grow by 1.6% in 2017 – up from its previous prediction of 1.3%.
This revision was down to the momentum from new contracts and activity in the second half of 2016 and early 2017, according to the Construction Industry Forecasts 2017-2019 from the Construction Products Association (CPA).
Output was also expected to grow by 0.7% in 2018, with construction activity remaining at “historically high levels”.
However, more recently activity has slowed because of subdued economic activity, an acceleration in costs and falling real wages.
This is also expected to impact on new contract awards and activity during the second half of 2017 and 2018, which is shown in the lower growth forecast next year.
The 0.7% growth forecast is also heavily reliant on increases in private house building and infrastructure delivery. Without growth in these two sectors, construction output would remain flat in 2017 and fall by over 1% in 2018.
According to the report, private housing starts in England in the first quarter of 2017 rose by 3.5%, compared with the previous quarter and were 22.2% higher than the rain-affected Q1 in 2016.
However, forward-looking indicators used by the CPA, such as mortgage approvals, property transactions and house prices, are currently looking pessimistic.
Generally, new house building has accounted for around 10 to 12% of property transactions. However, the Government’s Help To Buy equity loans appear to have distorted the normal relationship between new-builds and general housing transactions.
Despite a slowing general housing market, private house starts in the UK as a whole were expected to rise by 3% in 2017 to 151,240 and by 2% in 2018 to 154,265.
Activity in the private housing repair, maintenance and improvement sector during 2017 has been largely driven by the lagged impact of improvements on homes following the spike in property transactions just before the rise of stamp duty for buy-to-lets and second homes, as well as activity by those with considerable housing/pension wealth that are not anticipating moving property in the near or medium-term.
However, the drop in property transactions since the stamp duty change, the slowdown in UK economic activity, falling real wages and historic low savings ratios are likely to lead to falls in activity in this sector from the second half of 2017.
Overall, activity was expected to rise by 3% in 2017 before a fall in output of 1% in 2018.