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Construction output set to grow by 2 per cent next year as housing takes off

Construction output is forecast to grow by 2 per cent, after an upgrade from Experian.

The update on Experian’s summer forecasts show that output is set to fall by 2 per cent this year, owing to a poor first half. Experian head of construction futures James Hastings said that output for the first half of 2013 was 4.6 per cent down on 2012 so “it’s got to come an awful long way to even make it to a flat level of growth”.

But the update does reveal an upgrade on the company’s summer forecasts. Next year, output is to grow by 2 per cent (compared to 1 per cent predicted in the summer), while in 2015 the forecast has been raised by half a percentage point to show a growth of 3 per cent.

The public sector will still be strained, with public non-residential output forecast to fall by 14 per cent this year and by 8 per cent in 2014, returning to flat growth in 2015.”We still feel public finances will continue to be a drag and we expect some further unwinding.”

Housing meanwhile will show growth next year, with Experian predicting a surge of 10 per cent next year for private housing and 8 per cent in 2015. But there is still a degree of risk for the sector, said Mr Hastings.

“There is the worry of the creation of the house price bubble, and if Help to Buy prices the people it has been set up to help out of the market then there will be problems. Affordability is still not great and house prices didn’t fall enough [during the recession]. There is also the concern that demand won’t be sustained and whether that will constrain growth.”

The commercial sector is still set to fall next year, by 4 per cent, before returning to marginal growth in 2015. “The construction industry has always had a lag effect and the commercial sector tends to follow housing. Also, there is a longer gestation period for commercial projects with some taking   while to get to start on site, and the development pipeline has been so poor,” said Mr Hastings.

Experian expects the offices sector to fare better, though this is coming from a drastically low base, with some regions not seeing any development over the past three or four years. But it is more pessimistic about retail, Mr Hastings said. “There seem to be little logic for retailers to invest in an expansion of floor space. Consumer spending has grown, but that growth is anaemic.”

Meanwhile the industrial sector, while still remaining small in value is set to grow by 8 per cent both this year and next. “This is largely due to what is already on the ground and given the small value it doesn’t take a huge amount to see a reasonable boost. There have been some large automotive projects happening this year, and we should see growth in warehousing,” says Mr Hastings.

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