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Construction output forecasts: Hewes & Associates – winter 2013/14

Potential risks to a stable upward trend for construction output remain, says Hewes & Associates founder Martin Hewes.

Using data based on current prices, Hewes & Associates forecasts total construction output to grow by 6.8 per cent this year. This growth rate will slow down considerably next year to 2.4 per cent, and then to 1.7 per cent in 2016.

Mr Hewes says: “There are events out there that have a negative slant and I think there will be more of a pause.

“A lot of the growth we have at the moment is through Help to Buy and consumer spending, which has a ‘worn off’ effect about it.

“There is still a disparity between earnings and inflation, and the question is, ‘how long will that last?’”

Hewes & Associates forecasts a drop in private housing output year on year in 2016, following strong growth of 14.6 per cent in 2014 falling to 2 per cent in 2015.

“I see production peaking in 2014, with most of the growth occurring last year,” Mr Hewes says. “Help to Buy has been good for the market, but affordability is a concern.”

Public housing’s outlook is expected to be improved on the past few years, with social housing starts set to rise from around 27,000 units in 2013/14 to 30,000 in 2015/16.

Subdued outlook for commercial

The outlook for commercial construction over the next two years has improved following a stronger performance during late 2013 than anticipated. Hewes & Associates does, however, expect output to drop by just over 1 per cent in 2016.

“One has to attach the risks to the London market. Things therefore might start to be a bit less buoyant, but there still seems to be a turn up in offices”

Martin Hewes, Hewes & Associates

Despite this, the value of commercial output will be £1.6bn higher in 2016 than last year, and Mr Hewes acknowledges the caution behind the forecast.

“One has to attach the risks to the London market. It could just keep going up. London is indicative of global trends and things therefore might start to be a bit less buoyant, but there still seems to be a turn up in offices.

“The feeling is that around 50 per cent of what is being developed is speculative, and the amount of new available space is rising. My feeling on London is, ‘make the most of it now’.”

Infrastructure to grow by 10 per cent

Further peaks in activity expected this year include Crossrail. Hewes & Associates is forecasting the value of infrastructure to rise by £1.5bn, or 10 per cent, between this year and 2016, when it is predicted to reach record levels. The rate of this growth, however, will gradually slows over the three years.

Mr Hewes points to a significant increase in roads activity, following steep declines over the past two years, and revisions to official orders and output data within the electricity sector as contributing to this growth.

However, he doesn’t assume works on Hinkley Point C within the forecasts. “It is a brave assumption but there are a lot of politics around it – we decided to exclude it as there is still a lot of uncertainty,” he says.

There are also upside risks to the overall forecasts. “It could be that we manage to keep a version of Help to Buy going,” Mr Hewes says.

“The problem is debt is such a huge part of our economic system and the trouble with Help to Buy is that it cannot last forever, and people are not earning any more money on aggregate.”

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