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The road ahead for UK construction

For the construction sector, economic and market signals continue to be mixed, with signs that a slowdown in activity could be taking hold. This is a situation of politically-made uncertainty, borne out from domestic partisan turmoil and a perceived lack of progress in the Brexit negotiations. Yet in the face of all this, the continued relative momentum in the UK’s economic performance remains a clear marker of strength.

Will Waller

Market Intelligence Lead +44 (0)7787 152 097 Ask me a question
The road ahead for UK construction

The health of the construction market is directly linked to the economy, so any uncertainty or threats to economic growth could endanger the progress of projects. 

Although forecasts show global economic growth of 3.5% in 2017 and 3.7% in 2018 - up from 3.0% in 2016 - the UK economy is showing signs of a slow-down compared to previous years. 

The Treasury’s consensus forecast for growth is 1.6% in 2017 and 1.5% in 2018, down from 2.0% growth in 2016. However, the first three quarters of 2017 have shown only 0.9% of growth, which raises the question of whether a further 0.7% growth can be achieved in the fourth and final quarter.

Looking at specific sectors, while our expectation is for a decline in demand in key commercial sectors in 2018, demand in both the residential and infrastructure sectors looks likely to increase next year. In particular, growth in large projects such as reservoirs is expected to drive buoyant growth of 30% in the water sector in 2019. 

Navigating Brexit: Deal or No Deal? 

With little progress so far in the Brexit negotiations, a ‘no deal’ scenario is increasingly being mooted. This could have a significant impact on UK construction, thanks in part to the further devaluation of sterling, and the negative impact on skills, labour and trade.  

A ‘no deal’ scenario could undermine demand in some sectors, such as commercial offices, while speculative projects may be cut back in the short term. The cost of materials will increase due to the devaluation of sterling, while the addition of import tariffs will also have an impact, likely to average 2-3% alone. Most significantly, potential logistical problems around importing, such as customs queuing at borders, could constrain and delay the supply of materials and cause major delivery problems for projects throughout the UK.

The UK construction industry will need to be prepared for a potential ‘no deal’ situation through, amongst other actions, rebalancing the supply chain, boosting productivity, reviewing contracts and developing contingency plans. 

Download our latest Autumn Market View below to find out more.

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Will Waller

Market Intelligence Lead +44 (0)7787 152 097 Ask me a question

Arcadis White paper

The road ahead for UK construction

Introduction: For the construction sector, economic and market signals continue to be mixed, with signs that a slowdown in activity could be taking hold. This is a situation of politically-made uncertainty, borne out from domestic partisan turmoil and a perceived lack of progress in the Brexit negotiations. Yet in the face of all this, the continued relative momentum in the UK’s economic performance remains a clear marker of strength.

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