Given the Government announcement on Saturday that we’re entering a new national month-long lockdown, the country was understandably more uneasy than it would usually be on a typical Halloween evening.
But, unlike the previous lockdown, it’s not all doom and gloom: the construction sector (as well as manufacturing) has been permitted to continue as it has been doing for the past few months. So with that in mind, what happens next?
Forecasting in the construction sector has always been something of a dark art, with accurate predications usually being equal parts clever analysis and educated guessing.
The impact of COVID-19 has really underlined the difficulty of trying to understand the future, as with the best will in the world the list of uncertainties that have to be accounted for is just so long! Which is making it very difficult for anyone to fully understand the situation and plot a confident course forward – and this is all before we even mention Brexit (which now seems like a positively trivial obstacle in comparison).
However, this uncertainty means that it’s more important than ever to be aware of the latest stats and figures, as this is some of the little hard evidence that we can all collectively count on.
Recently there’s been some good news and some bad news on this front. Among the bad news is that even though we should be out of recession by now (confirmation to come in next month’s economic figures), the economy is growing much slower than had been hoped for and is still 9.2% smaller than before COVID-19 hit.
The state of construction
Much like the wider economy, the latest figures paint a mixed picture for the construction industry. The Office for National Statistics (ONS) has said that despite record monthly growth in June (21.8%) and July (17.2%) August was nowhere near as rosy, with only 3% growth during the month. This meant that, again in a close mirror to the economy at large, the construction sector remains around 11% below its pre-pandemic levels.
Glenigan’s September review of construction showed that the value of projects starting on site averaged £4.7 billion between June-August, which is 30% lower than the same time last year, and in addition, the value of contracts awarded was 7% lower than during the same time in 2019.
However, it’s not all doom and gloom. According to the Construction Products Association, major contract awards between June-August were up 52% compared to 2019. Government funded infrastructure projects have remained strong, with approvals for projects valued at over £100 million being up 94% compared to a year ago. This work includes projects such as HS2, the largest construction project in Europe, alongside Balfour Beatty being awarded six deals worth £556 million in August alone, and A&E Elkins securing a £300 million contract to deliver 750 modular homes.
The CPA also pointed to several other key areas that have shown signs of substantial growth or remained steady throughout the year, including public sector developments such as schools and hospitals, as well as new build and RM&I.
Another sector which perhaps surprisingly is showing signs of health is office building, with Glenigan revealing that the development pipeline for the sector grew during the three months to August, with the value of approvals rising 83% against 2019 to a total of almost £2 billion. In fact, plans for a 500,000 sq ft office project in Manchester were announced only last week, showing confidence in the market even at this time. The planning consultant Deloitte said that the decision was based on the fact that the Bank of England believes the economy will be back to pre-Covid levels by early 2022.
What does the future hold?
Various reports from the industry suggest that decisions are being made in the belief that post-pandemic recovery will happen, and that actions can be, and are being taken now despite current economic uncertainty.
The CPA has said that it is predicting an 18% growth in the construction sector in 2021, being led in large part by the same sectors mentioned earlier (infrastructure, public sector, housebuilding and RM&I).
Alongside infrastructure plans, there are several other government initiatives which should help bolster the industry and stimulate work as we head into the new year, including the extension of the completion date for homes built under the current help to buy scheme to 28th February 2021 as well as the introduction of the Green Homes Grant scheme. Also, the large sums of money the government has put aside to decarbonise public sector buildings and for improving the energy efficiency of existing housing stock will also help encourage more work at this time. It’s safe to say that current growth prospects are largely tied up (and to some extent at the mercy of) government policies, plans and spending priorities.
There’s still a lot to wrap our heads around before we usher out the year, including the Bank of England’s policy setting meeting in November, the possibility of a no-deal Brexit and more local lockdowns, but keep checking back on our blog, as we’ll be doing our best to make sense of it all and highlight the things that you most need to know as we go along.