Kevin Heaton, Director
TENDER PRICE FORECAST
The UK Construction industry continues on a somewhat rollercoaster journey with
ongoing concerns over Brexit, softening demand and the fallout from the demise of
Carillion impacting on the general economic outlook for the industry. The latest data
from the Office of National Statistics (ONS) shows that construction output fell by 0.7%
in the three months to December 2017 making Quarter 4 2017 the third consecutive
quarter of decline which is the most sustained fall in quarterly construction output
since Quarter 3 2012. The drop in quarterly output was mainly due to falls in all types
of repair and maintenance (down by 2.0%), private commercial (down by 4.4%) and
private industrial (down by 3.1%). By contrast new private housing continued to grow,
increasing by 5.0% in Quarter 4 compared with Quarter 3 and increasing by 2.9% on
the month on month comparison.
Despite the 0.7% fall in construction output representing the third consecutive
quarter-on-quarter decline and the eighth consecutive three-month on three-month
fall, construction output in the UK grew by 5.1% in 2017 due to the strong growth at
the end of 2016 and in Quarter 1 2017 offsetting the declines in Quarters 2, 3 and 4.
Similarly, whilst output fell in the final quarter of 2017 it grew sharply in the month-on-
month series increasing by 1.6% in December 2017. This growth was attributable to
a 4% increase in all new work (the largest month-on-month increase since December
2015) mainly on account of large increases in infrastructure spending. Following this
latest month-on-month increase in December 2017, it is worth noting that construction
output, which peaked in March 2017 at 31% above the lowest point of the last five years
(January 2013), is now 30% above this lowest level.
The wider economic outlook for the UK indicates that growth will, at best, remain weak
but steady and forecasts vary greatly depending on assumptions made concerning the
outcome of the UK’s eventual withdrawal from the EU and whether this will constitute a
‘hard’ or ‘soft’ Brexit.
ONS data confirms that GDP grew by 0.5% in the final quarter of 2017 resulting in an
annual increase of 1.8% for 2017 (1.9% in 2016), which although less than growth rates
in the EU and elsewhere was better than some forecasters had predicted. The UK and
the EU, however, both remain well below the current world growth rate. Unfortunately,
the construction sector lagged behind the growth rates of other sectors of the UK
economy with a negative contribution of -1% to the Quarter 4 GDP figures.
The National Institute of Economic and Social Research (NIESR) estimates that GDP
grew by 0.5% in the three months to January 2018 which is unchanged from the 0.5%
growth in the three months to December 2017. The NIESR’s latest quarterly forecast
projects GDP growth of 1.9% in 2018 “assuming a soft Brexit scenario” and 1.9% again
in 2019. HM Treasury’s Average of New Forecasts predicts a slightly lower GDP growth
of 1.6% in 2018 and 1.5% in 2019, whilst according to OECD’s latest forecasts, UK
GDP growth is projected to stabilise at a low rate of 1.2% in 2018 and 1.1% in 2019,
again assuming that the negative impact of Brexit uncertainly will be “partly countered”
by an assumed agreement on a transition period after March 2019.
