UK construction output will contract by 10.3% in 2020

Following the release of data from the Office for National Statistics (ONS) showing a strong increase in construction output in July;

Moustafa Ali, Economist at GlobalData, a leading data and analytics company, offers his view on the outlook for the UK construction industry:

“UK construction output continued its recovery in July, with output increasing by 17.6% month-on-month, significantly higher than the market consensus forecast of 10.5%. The strong monthly data is in line with GlobalData’s expectation of a steady recovery and reflects the general improvement in economic conditions across all sectors. GlobalData forecasts that construction output in the UK will contract by 10.3% in 2020.

“Construction output growth is expected to continue to grow and partially recover over the next few months. However, the construction sector is likely to be constrained by two factors in the medium term; firstly, a possible second virus outbreak in the winter, which may lead to another lockdown and will cause significant disruption to the recovery of the sector. A second potential constraint for the sector is if the UK fails to reach a trade agreement with the EU before December. Tariffs are likely to be applied on products and goods imported by the sector for construction use in the event of a failure to reach an agreement. This will likely become a significant cost for firms already struggling with cash flow difficulties as a result of the virus outbreak.

“The strong July data follows the 23.5% growth in output recorded in June. Despite three consecutive months of strong growth, output in 2020 is still 11.6% below the pre-COVID-19 level in February. Growth in construction output was largely driven by new public and private house building and commercial construction. However, across all sectors except for infrastructure, construction output on a yearly basis remained significantly lower in July 2020, despite strong growth in the last few months. Overall, construction output is down 11.7% on a yearly basis in 2020.”

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