Sunny Rorecast for UK Construction in 2017

December saw the fastest growth in almost 12 months, according to a survey, but the weaker pound has increased the costs of materials to a 5 and a half year high. The positive report from CIPS/Markit came a day after a strong survey from the manufacturing sector, showing a 2 and a half year high. When combined they show a more positive view than many had expected following the Brexit vote last June. The main driver behind construction growth was the housing sector growing at the fastest rate since January. Civil engineering works experienced good gains as well as a slight increase in commercial construction.

Price and cost pressure however, has increased further as a result in the sharp drop in the pound since the referendum. The latest rise in input costs from 71.5 to 72.2 was to a new high not seen since April 2011. Construction firms are forced to pass the price increases of imported raw materials onto customers with output prices rising at a pace not seen since March.

Overall business confidence across construction remains high but the industry is not yet feeling the effects of Brexit, many have concerns the current levels of buoyancy will only be a short-term thing. Civil engineering and Residential construction is believed to remain stable into 2017 but a fall in GDP will most likely hit commercial property the hardest. As levels of foreign investment slow so too will new office development projects, which will in turn put pressure on margins as competition ramps up resulting in a hit for contractors.

In addition to the positive growth forecast the UK Government has indicated their PFI (Project Financed Infrastructure) model is set to provide a pipeline of PF2 opportunities. The MoD has also stated it will consider using PF2 a possible means to deliver its Better Defence Estates initiative. The Silvertown Tunnel project in London is being procured using PF which may end up as a test bed for future financing of Thames crossing projects. 

Whatever happens PFI still remains a bone of contention with its political taint and the tender lists for PF for certain NHS trusts and local councils lack a number of contractors who are just not willing to commit to the sums required to bid.

In conclusion the short-term outlook for construction definitely looks rosy, for exactly how long we will just need to wait and see.