2018 was a difficult year for construction in the UK with growth in new work around 0.8%, which is a decline in real terms. Forecasts for new work in 2019 have been downgraded from a range between 1 to 2% down to 0%. Growth in repairs and maintenance work of 1.2% gives an overall forecast increase in total construction output at 0.4% according to Experian.
UK Construction Output
2019 is expected to be a difficult year, but output is expected to pick up in 2020 and 2021, largely driven by housing and infrastructure.
Construction industry trends
Looking at 2018 performance, private housing, infrastructure and private industrial were in positive territory, but other sectors declined. The picture will be similar in 2019, however public non-residential is expected to come back from the 14% contraction of 2018.
Construction output fell to its lowest level in 10 months in January 2019 according to HIS Markit/CIPS, and employment growth in construction has fallen to a 2 year low.
By 2020, however, we are expecting output to have bounced back with all sectors in positive territory for new work except for private commercial that is forecast to be flat. There is reason to challenge the outlook for private commercial, however. Some commentators suggest that a “Brexit Bounce” may follow, with pent-up investment being released following improved certainty about Brexit.
Weakening demand, rising costs and lower margins
Slower growth and weakening demand is expected in 2019. There are rising costs and greater competition, which is putting pressure on contractor margins. 2018 saw the demise of Carilion, and there are other contractors in difficult positions. The expected 2019 performance means that supply chain organisations may be distressed, and this risk needs to be understood and mitigated. Those responsible for projects will be considering the financial standing of their supply chains, undertaking due diligence to help identify those that may be in trouble.