Construction industry predicts fall in growth for 2022/23

Construction industry growth forecasts have taken a knock for 2022 and the sector is not expected to return to pre-pandemic levels until 2025.

In its latest quarterly forecast, The Construction Products Association (CPA) has drastically revised its predictions for the year ahead in light of global events and predictions for the UK economy.

The CPA previously forecast that construction output would grow by 4.3% in 2022 but is now predicting growth of just 2.8%, with a further fall to 2.2% on 2023. It said that current order levels would sustain activity until at least Q3 of 2022.

The residential sector is the largest segment in the construction industry and the CPA forecast suggests that despite housebuilders reporting good levels of demand, private housing starts are expected to rise by just 1% in 2022 and 2023 against forecasts of 3% three months ago.

In private housing repair, maintenance and improvements, the CPA predicted a fall of 3% in 2022 and 4% in 2023, as consumer spending begins to feel the squeeze of the rising costs.

Commenting on the latest forecasts, CPA economic director Noble Francis said: “The major challenge is creeping uncertainty. The immediate picture is one of resilient demand and healthy pipelines. Longer-term, the current inflationary pressures, if sustained, will have an increasingly depressing impact, while the continuation, or potential escalation, of conflict in Europe presents an existential risk.

“Specialist subcontractors are feeling the effects first, particularly those working to fixed-price contracts. For future projects, contractors will be forced to reprice, add fluctuation clauses and introduce risk-sharing arrangements to deal with the uncertainty over potential cost inflation.”

Figures from IHS Markit broadly agree with the CPA predictions, suggesting 2.1% growth for 2022 and 2.8% for 2023. IHS Markit said it does not expect the construction industry to regain the levels of 2019 until 2025.

IHS Markit also said that the number of construction firms reporting supplier delays fell from 47% in November to 34% in December.

Looking at regional trends in the UK, HIS Market said that the North and North-East had the highest levels of growth over the past five years, closely followed by London. The East of London and the Midlands, it said, were poised for strong growth and the outlook for Scotland was a sustained growth of 4% to 5% for the medium term.

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