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CPA forecasts: Retail and office slump cause major downwards revisions

A major slump in retail and office activity will stunt growth over the next three years, according to the Construction Products Association’s latest forecasts.

A combination of falling consumer spending, a weak pound, investor uncertainty and the continuing growth of the online sector will cause three consecutive years of declining activity in retail.

The association forecasts a significant decline in retail activity in the next three years, with the sector predicted to fall by 8 per cent in 2016 followed by further declines of 4 per cent in 2017 and 2 per cent in 2018.

Offices work is also expected to see a fall, albeit from a strong base: activity is forecast to grow by 8 per cent this year but will dip by 3 per cent in 2017 and 10 per cent in 2018.

The association forecasts total construction output to grow by 0.6 per cent in 2016, 0.3 per cent in 2017 and 0.2 per cent in 2018.

These figures represent a significant downwards revision from previous forecasts made in April 2016, when the association predicted growth of 3 per cent in 2016, 3.6 per cent in 2017 and 4.1 per cent in 2018.

Infrastructure is forecast to be the industry’s strongest sector, with double-digit growth by 2018. Infrastructure output will rise 0.9 per cent this year, followed by 6.2 per cent in 2017 and 10.2 per cent in 2018.

Other sectors that will see growth include education, which will expand by 5.8 per cent by 2018 driven by major university investment programmes, including Manchester University’s campus overhaul and a £1bn investment in a campus extension by the University of Glasgow.

The sector will also benefit from public sector spending from the Priority Schools Building Programme.

In 2017, only three sectors are forecast to grow: infrastructure (6.2 per cent), public non-housing (0.2 per cent) and other new work (1.2 per cent), while private housing is expected to be flat.

CPA economics director Noble Francis said the figures reflected the divisions between commercially funded construction, and public sector-funded works and regulated sectors.

“In construction sectors that are likely to be affected by the uncertainty, new investment has already fallen sharply but the lag between new contract awards and activity on the ground means the weakening in sector output is likely to occur from the second half of next year,” he said.

“With an upcoming Autumn Statement, it is vital that the chancellor focuses on reducing uncertainty for the private sector, sustaining the housing sector and ensuring delivery of education construction and major infrastructure projects already in the pipeline.”

In September, the CPA outlined three different forecast scenarios for construction over the next three years, with an upper, central and lower scenario showing different outcomes for construction depending on how the wider economy performs.

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