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Building Products January 2018

INDUSTRY ANALYSIS WHAT LIES AHEAD? As we enter a brand new year, Rebecca Larkin, senior economist at the Construction Products Association, looks at the outlook and challenges for construction in 2018 and beyond... The cranes and scaffolding on the skylines of UK cities demonstrate the high levels of construction activity currently underway within the commercial, residential and infrastructure sectors. So perhaps the Construction Products Association (CPA) forecast of zero growth in construction output in 2018 comes as a bit of surprise. While at face value, it is a significant slowdown from the growth rates we have seen over the last three or four years, it means that work volumes will remain at a recordhigh level. Looking at the industry at a sector level is where we envisage the most divergence in performance, however. The largest growth rates are forecast in infrastructure: 6.4% in 2018 and 9.8% in 2019. This reflects ongoing work under Highways England’s Road Investment Strategy and other regulated periods in rail and water and sewerage, but the main driver of activity is the start of work on major projects. This includes the 10 BUILDING PRODUCTS | JANUARY 2018 £4.2 billion Thames Tideway Tunnel, Hinkley Point C, the UK’s first new nuclear power station in more than two decades, worth £19.6 billion, and the £55.7 billion HS2. The first contracts for early work on HS2 were awarded in the third quarter of 2017, producing quarterly growth in new orders of 37.4%, the largest jump in total orders growth since the start of work on the Channel Tunnel in 1987. Reaching this point in the process provides greater certainty for a sector driven by such large, high-value projects. After all, back in 2007, the then-chief executive of EDF predicted that we’d be cooking our 2017 Christmas turkeys using electricity generated by Hinkley Point C. In the ensuing decade, the project was beset by difficulties around approval, commercial investment decisions and a final strike price agreeable with the government. Even as initial work has begun on accommodation blocks and ground excavations, there are still issues over the nuclear reactor design, which has experienced delays and cost overruns on similar projects in France and Finland. Private house building is also set to continue as a primary driver of construction activity in 2018 and 2019. Mortgage lending conditions and low interest rates remain supportive of demand and continued house price growth would be expected to maintain


Building Products January 2018
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