No Major Surprises in the UK's Autumn Statement
Timetric’s Construction Intelligence Center (CIC) continues to hold a bearish short-term outlook for UK construction, with economic and political uncertainty weighing on output following the referendum to leave the EU. In the Autumn Statement the government prioritized short-term projects to boost business productivity but remains reticent to commit larger figures in the longer terms.
In the Autumn Statement, the Chancellor of the Exchequer, Phillip Hammond, announced the National Productivity Investment Fund, which will add GBP23 billion in investment towards housing, research and development (R&D), and infrastructure from 2017 to 2022, an amount that takes total expected government spending in these areas to GBP170 billion through to 2022.
Nathan Hayes, Economist at Timetric’s CIC, comments: “There was little in the Autumn Statement to drive any major revisions in the outlook for the UK construction market, with the CIC having maintained that investment in construction projects will likely continue over the coming five years, but that there will be particular weakness in 2016 and 2017 in the face of economic and political uncertainty, and spending over the coming years could stall as a result.”
Mr Hammond had previously suggested that fiscal stimulus in the Autumn Statement would contribute to the “long-term investment needs of the country”, boosting productivity and growth. In the face of ongoing economic uncertainty, the government had already abandoned a previous commitment by former Chancellor George Osborne to achieve a budget surplus by 2020, although it reportedly still seeks to achieve a budget surplus at some point. Nevertheless, Mr Hammond is generally seeking to take a moderated approach to national debt levels. Accordingly, spending will be on targeted projects that can achieve the most immediate impact, such as boosting productivity through infrastructure improvements to help businesses.
The CIC still expects the UK’s construction industry to suffer a marginal contraction in output value in 2016 in real terms (constant prices). This reflects both the weakness in the industry in the first half of the year ahead of the Brexit referendum and the expected slowdown in the second half as investment plans are put on hold amid the uncertain outlook for the economy. Construction output will contract by 0.2% in real terms in 2016.
According to data from the Office of National Statistics (ONS), UK construction output decreased by 1.1% quarter-on-quarter (q-o-q) in July-September 2016 compared with the previous quarter (April to June). Repair and maintenance decreased by 3.6% q-o-q, but this was partially offset by an increase in all new work of 0.3% q-o-q. On a year-on-year basis, total construction output is estimated to have increased by 0.1%. All new work increased by 2.0%, but there was a fall of 3.4% in repair and maintenance.
Given the uncertain outlook over the future of the UK’s economy and the trading and investment environment vis-à-vis the EU, it is to be expected that a number of major projects could be delayed over the coming years until a clearer picture emerges, particularly those that are backed by investors based in other EU countries. There are also concerns that a weaker UK economy could mean that many projects will no longer be viable, and with the changes at the helm of the government, projects requiring significant political backing could also fall out of favor.
Investment in large transport infrastructure projects will likely continue through the period 2016–2020. Spending on road, rail and harbor projects fell sharply in early 2016, and amid the change in government following the Brexit referendum and the uncertain outlook, the progress of new projects is set to slow and existing projects potentially put on hold. The Autumn Statement does not change this outlook; the government’s reticence to finance longer-term large projects, favouring productivity-boosting short-term infrastructure projects such as roads and railways, speaks to their broadly sluggish growth outlook and concern over adding to the debt burden by financing large-scale projects.
About the Construction Intelligence Center
The Construction Intelligence Center (CIC) is the most comprehensive source of data and analysis on the global construction industry. The Construction Intelligence Center is a product of Timetric, which provides information solutions and technologies that enable organizations to drive business value and manage business risk. For more information and updates, please visit www.construction-ic.com.
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Source: Company Press Release