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Construction Industry
Forecasts 2021-2023
Spring 2021 Edition - £210
Contents Overview 3 Upper Scenario 15 Lower Scenario 17 Economy 19 Private Housing 30 Private Housing RM&I 38 Public Housing 44 Public Housing RM&I 49 Public Non-housing 53 Public Non-housing R&M 61 Commercial 64 Private Non-housing R&M 77 Industrial 79 Infrastructure 84 Infrastructure R&M 96 © 2021 Construction Products Association. All rights reserved. This document is licensed for the exclusive use of Members of the CPA and purchasers of its economic forecasts (£210). Please do not publicly distribute this document. Additions to the distribution list can be made by contacting the CPA at 020 7323 3770. DISCLAIMER All construction figures (starts, completions, orders and output) refer to Great Britain. All output figures are in 2018 constant prices using the historic figures from the Office for National Statistics (ONS) – as at 9 April when the Forecasts were finalised. All new orders figures are in 2018 constant prices using the historic figures from the Office for National Statistics (ONS). The information in this booklet has been prepared by Construction Products Association and represents the views of Construction Products Association without liability on the part of the Construction Products Association and its officers. 2
Overview
Construction output is anticipated to rise by 12.9% in 2021 driven by growth in
infrastructure, public housing repair, maintenance and improvement and industrial.
With further growth of 5.2% in construction output during 2022, activity is expected to
surpass 2019’s level of output next year.
Spring 2021 sees the UK gradually exiting
its third national lockdown, which had
a significant adverse impact on UK
economic activity once again and the
UK economy is in line for a ‘W’-shaped
recovery following dips in economic
activity in 2020 Q2 and 2021 Q1.
However, construction activity continued
largely unhindered throughout the first
quarter of 2021 with the whole supply
chain (architects, consultants, contractors, SMEs, manufacturers and merchants) permitted
to operate. On a monthly basis, construction activity was almost back to pre-Covid-19
(coronavirus) levels of output due to the sharp recovery in the second half of 2020. However,
given the large hit to the industry in the first half of 2020, it will be next year before the
industry recovers the lost output and returns to 2019 levels.
The recovery in industry activity since the unprecedented initial lockdown, between 23 March
2020 and mid-May 2020, has been swift overall but it has varied considerably across the
key construction sectors. Activity in housing repair, maintenance and improvement (rm&i),
infrastructure and non-housing repair and maintenance (r&m) in February 2021 was already
above pre-coronavirus levels of output. Private house building in February 2021 was still
slightly lower than pre-coronavirus as activity on private new build houses outside city centres
was considerably higher than a year earlier but this was offset by more subdued activity public
sector house building, conversions (e.g. a house into multiple flats) and changes in use (e.g.
offices into flats), particularly in city
centres. Although activity in February
was adversely affected by poor
• Construction output rises 12.9% in 2021
Key Points
weather, the indications so far are
and 5.2% in 2022 that rm&i, infrastructure and housing
• Infrastructure output to rise 29.3% in 2021 activity accelerated in March and
and 5.9% in 2022 historically high activity levels are set
to continue near-term, driving growth
• Private housing output rises 14.0% in 2021 for the whole industry.
• Commercial output at the end of 2023 still Infrastructure output is forecast to
expected to be 10.5% lower than in 2019, rise significantly over the next two
pre-Covid-19 years, boosted by activity on major
• Private housing repair, maintenance and projects such as HS2, in spite of more
improvement to grow by 12.0% in 2021 delays and cost overruns since our last
scenarios, as well as activity on long-
• Public housing repair, maintenance and term frameworks in regulated sectors
improvement to rise by 15.0% in 2021 such as water, roads, electricity and
broadband.
3
Activity in commercial and industrial
new build remains double-digit lower
Construction Output (% Growth) than a year earlier and fortunes are
mixed for the two sectors. Industrial
output has suffered due to the impact
12.9% on factories construction in 2020.
However, output in the sector is
5.2% likely to increase significantly during
1.8% 2.8% 2021 driven by warehouses growth.
Commercial activity is set to struggle
due to slower progress on major
projects, particularly in Central London
and a lack of major investment in new
-12.5%
projects although activity overall this
2019 2020 2021e 2022f 2023p year is still set to be higher than a year
earlier.
Source: ONS, Construction Products Association
Since the end of the Brexit
implementation period on 31
December, the main impacts of Brexit
for firms in the construction supply chain so far have largely been felt by a minority of firms.
These are primarily SME materials importers and product manufacturers trading with the EU
or merchants and manufacturers that are exporting products to Northern Ireland that have
struggled initially with the increase in administration and certifications, particularly with lorry
traffic that is reliant on the capacity of EU drivers coming to the UK. However, Brexit remains a
key risk for construction in the medium-term, particularly given issues that may impact products
supply from 1 January 2022 due to REACH and UKCA marking.
The CPA’s Spring forecasts represent a slight change in profile, with a downward revision for
2021 and a marginal upward revision for 2022, compared with the main Winter Scenario. In
the Spring forecast, construction output is forecast to rise by 12.9% in 2021 and 5.2% in 2022
compared with 14.0% in 2021 and 4.9% in 2022 in the Winter main scenario.
This reflects two factors. Firstly, the recent downward revision to the growth forecast for 2021
reflects that the growth is compared with a higher base in 2020 as the Office for National
Statistics (ONS) reported that construction output did not fall as much as initially anticipated
Construction Output
200,000
5.2% 2.8%
180,000 6.1% 0.0% 1.8% 12.9%
4.1%
3.8%
160,000 9.9%
£ million - 2018 Constant Prices
140,000 -12.5%
120,000
100,000
80,000
60,000
40,000
20,000
0
2014 2015 2016 2017 2018 2019 2020 2021e 2022f 2023p
e = estimate f = forecast p = projection Source: ONS, Construction Products Association
4
in the Winter Scenarios.
The downward revision to
growth for 2021 also reflects
a slight change in the profile
of construction recovery with
lower growth this year and
higher growth next year.
The downward revision to
construction output growth
this year is despite an upward
revision to UK economic
growth and it is worth
highlighting, as in previous CPA
publications, how different the
fall in economic and construction activity in 2020 was compared with previous recessions and,
consequently, the recovery is considerably different to other recoveries following sharp declines
in economic and construction activity.
Historically, construction output tends to move with the business cycle but it tends to be three
times more volatile on average and, consequently, during recessions construction tends to
endure a fall in output three times larger than that for the UK economy as a whole. For instance,
during the financial crisis in 2008-09, UK GDP fell by 5.9% peak to trough whilst construction
output fell by 17.1%.
However, this has been a very different type of recession, not due to a lack of finance or demand
in the economy. This time it is due to a public health crisis that led the government to shut down
parts of the economy that primarily involve person-to-person interaction services that are
considered non-essential such as in-store retail, leisure, travel and tourism.
As a result, the burden of the three lockdowns has largely been borne by the services sector,
which accounts for 81% of the UK economy, whereas many construction sectors have recovered
quickly since the initial lockdown in Spring 2020 and have not endured declines in activity in
spite of the second and third lockdowns in November 2020 and the first quarter of 2021 as the
construction supply chain was permitted to continue.
The fact that services, and consequently, the UK economy faltered in 2020 Q4 and 2021 Q1
Public & Private Sector Construction Output
£ million 2019 2020 2021 2022 2023
Change on previous year Actual Actual Estimate Forecast Projection
40,863 37,843 43,278 45,192 46,632
Public Sector inc. PFI
3.4% -7.4% 14.4% 4.4% 3.2%
130,616 112,143 126,043 132,981 136,464
Private Sector
1.3% -14.1% 12.4% 5.5% 2.6%
171,479 149,986 169,321 178,173 183,096
Total Construction
1.8% -12.5% 12.9% 5.2% 2.8%
Source: ONS, Construction Products Association
5
whilst construction activity
rose means that the historic
relationship between the UK
economy and construction
output has temporarily
broken down. This has been
exacerbated by government
having driven a considerable
proportion of the recovery
in construction, either directly
through infrastructure funding,
cladding remediation and non-
housing repair and maintenance or indirectly through stimulus for the housing and house building
markets through the stamp duty holiday and extensions, Help to Buy extension and the recent
mortgage guarantee scheme.
The CPA’s forecast for the UK economy expects a fall in UK GDP in 2021 Q1, due to the
impacts of the national lockdown on the services sector (see Economy). UK GDP is estimated
to have fallen by 2.9% in January 2021 due to a contraction of 3.5% in services in January 2021
whilst activity rose by 0.4% in February and activity in March is unlikely to recover markedly.
UK GDP in February was also 7.8% below the levels seen in February 2020, pre-coronavirus.
After the success of the vaccine rollout, the easing of restrictions and reopening of large parts
of the economy such as person-to-person interaction services is likely to ensure that consumer
spending rises sharply from the second quarter of the year although travel and tourism are likely
to take longer to recover. Overall in 2021, UK GDP is forecast to rise by 6.5% before growth
of 5.4% in 2022. Concerns remain regarding the impacts of the end of the furloughing scheme
and the Self-Employment Income Support Scheme after September, which may still lead to rises
in unemployment that hinder a sustained recovery. However, the government has consistently
used policy to avoid a sharp rise in unemployment and, as a consequence, would be expected
to extend these schemes targeted at badly-affected sectors if necessary i.e. if they have not
recovered by Winter 2021.
Whilst UK economic activity remains substantially below pre-coronavirus levels, construction
output has recovered more sharply than the UK economy in spite of falling further during the
initial lockdown. Construction output fell by 40.7% in April 2020, when activity was affected
most by the initial lockdown. However, the industry got back on site quickly as social distancing
restrictions eased from mid-May and output in November was only 0.9% lower than at the start
of the year, pre-coronavirus. Activity slowed over the Winter period in part due to the usual
construction shutdown between Christmas and New Year but also partly as a result of increased
numbers of site staff being off sick or self isolating.
Construction output in February 2021 was 1.6% higher than in January 2021 although it was still
4.3% lower than a year earlier, pre-coronavirus. The indications are that activity rose in February
2021 as industry ramped up after the Winter shutdown, although persistent rain affected on site
activity, and the indications from construction firms are that activity accelerated further in March
due to high demand in housing, repair and maintenance, refurbishment and infrastructure.
Infrastructure was the least affected sector during the initial lockdown and output in November
2020 was already 3.1% higher than in January 2020, pre-coronavirus. Private housing new build
and repair, maintenance and improvements (rm&i) were the worst affected sectors in the initial
lockdown but activity recovered rapidly from mid-May. Private housing rm&i activity in July 2020
was already back at levels at the start of the year, pre-coronavirus, according to revised data
from the ONS and output in October 2020 was 10.7% higher than in January 2020.
Private housing new build output, which includes conversions and changes in use, in February
6
2021 was 3.2% lower than in February 2020 but it is worth noting that MHCLG starts and completions in England in 2020 Q4 were already 24.1% and 5.8% higher than pre-coronavirus, which points towards buoyant new build housing whilst conversions and changes in use remain subdued within cities, particularly London. The key concerns in construction activity are in the commercial and industrial sectors, which didn’t fall as sharply as in housing but have also not recovered as quickly. In October 2020, when all previous sites that had stopped during the initial lockdown had restarted, commercial output was still 16.1% lower than January 2020, pre-coronavirus, and activity has slowed since then. Commercial output in February 2021 was 16.6% lower than a year earlier. Industrial output in October 2020 had recovered to 16.3% lower than in January 2020 and has remained broadly at that level since. Industrial output in February 2021 was 26.2% lower than a year ago. It is worth noting that in 2020, many firms in the construction supply chain reported that the ONS underestimated the extent of the rate of recovery in private housing new build and rm&i activity. In particular, firms in the supply chain reported that in October 2020, activity was already considerably higher than a year ago, which was not the case in the original ONS data release. Following the CPA’s concerns, the ONS’s more recent construction output data has used late survey returns and VAT returns from SMEs to get a better estimate of r&m activity. An extra £1.6 billion has been added into private housing rm&i and an extra £1.1 billion has been added into non-housing r&m, which meant that private housing rm&i in the year to October in 2020 is now -15.4% rather than -22.8% that the ONS originally estimated. 7
Infrastructure output was estimated to have fallen by 3.9% in 2020 and it was the construction sector least affected by the initial lockdown as it was considerably easier to enact site operating procedures and other safety measures on large sites that involve fewer small groups of different trades than in other sectors operating smaller sites, often indoors with many different groups of trades. In 2021, output is set to increase by 29.3%, reaching its highest level on record. This growth is expected to be driven by main construction works ramping up on large- scale projects such as HS2, as well as higher activity under the five-year investment programmes within regulated sectors. The recent delays to, and cost increases of, HS2 were already expected by the CPA and further delays and cost increases are expected over the forecast period. In spite of this, the extent of work on the project will be sufficient to generate double-digit growth in the rail sub-sector. Although infrastructure growth is projected to slow to 5.9% in 2022, this is further growth from a historic high base due to HS2 and Hinkley Point C activity as well as a pipeline of other projects and frameworks in the rail and electricity sub- sectors. Private housing was the worst-affected construction sector in the initial lockdown and it was also one of the sectors quickest to recover in 2020, due to pent-up demand that was unable to be enacted in Q2 coming through. It was also aided by the stamp duty holiday and the first phase of Help to Buy, as well as government policies focused on maintaining high employment levels, such as the furloughing and self-employment income schemes (see Economy), preventing a sharp rise in forced sellers. The sharp recovery in demand has particularly focused on houses rather than flats and outside urban areas rather than in cities, particularly London as new homeowners prioritise space over proximity to city centre offices. The extensions to the stamp duty holiday and current Help to Buy will help to sustain demand for the majority of this year. In addition, the Chancellor’s mortgage guarantee scheme will help to enable demand in the general housing market, particularly for those reliant on 90% and 95% loan-to-value ratio mortgages, the supply of which declined sharply since the initial lockdown. Mortgage lending and property transactions towards the end of 2020 were already above pre- coronavirus levels and as the CPA anticipated in its Autumn and Winter scenarios, that appears to have been a peak with pent-up demand and government stimulated demand combined. Although demand has slowed since then, it is still expected to remain high over the next 12-18 months, particularly if government extends current stimulus for the housing market. Leading indicators suggest that property demand will still remain high over the next six months at least and housebuilders remain positive. As a result, private housing output is anticipated to rise by 14.0% in 2021 and rise by a further 8.0% in 2022 and 4.0% in 2023 due to sustained economic recovery. 8
Private housing rm&i, which covers only contracted-out activity and so excludes DIY, was one
of the sectors that was worst affected by the initial lockdown between 23 March and mid-May
but has been the quickest to recover. Output in the sector in October 2020 was 10.7% higher
than in January 2020, pre-coronavirus due to a combination of pent-up demand that could not
be enacted in the initial lockdown and higher demand for additional, better quality outdoor
leisure space at home. In addition, many households that have been working from home have
refurbished their homes to provide better home office work environments. This has been
enabled primarily by households that have maintained their jobs and sustained incomes over the
past year but have reduced commuting costs and spending on non-essential retail, leisure and
hospitality so have built up substantial savings and shifted towards spending on their home whilst
substantial parts of the UK economy remained closed for significant periods of the past year.
The Bank of England estimates that households have accumulated £160 billion of savings over
the past year. Private housing rm&i output has slowed since the peak in October as the pent-
up demand has largely fed through now but activity in February 2021 remained 6.8% higher
than one year ago, pre-coronavirus and near-term there is little sign that activity will fall away
significantly. SME builders and merchants report that activity levels in the rm&i market remain
high and that activity rose sharply in March. In the medium-term, however, there are questions
regarding what will happen to spending patterns and whether households will shift back towards
non-essential retail, hospitality, leisure, travel and tourism as social distancing restrictions ease. The
CPA’s assumption at this point is that the savings that households have accumulated should be
sufficient to enable a return to historic spending patterns as well as investment in their homes
over the forecast period. However, growth rates are likely to slow. In addition, the government
has cancelled its failing Green Homes Grant scheme to new applications from 31 March 2021,
which suffered badly from poor administration and a lack of registered installers. The CPA’s
assumption in previous forecasts and scenarios was that the Green Homes Grant would largely
be used to subsidise activity that would have taken place anyway, although it may have brought
forward activity from the next financial year into 2021/22. As a result, the cancellation of the
scheme makes little impact on the CPA’s forecast. Overall, private housing rm&i output is
forecast to rise by 12.0% in 2021 taking levels above those in 2019 and growth of 1.0% in 2022
and 2.0% in 2023 leaves activity at historically high levels.
Public housing rm&i is forecast to grow considerably (15.0%) in 2021 due to a backlog of
remediation of cladding on towers that will need to be carried out as a priority on the public
housing stock at the expense of other planned repairs and non-essential maintenance activity.
As a result, firms working on cladding remediation are expected to enjoy double-digit growth
but they are likely to experience issues regarding imported materials availability and cost due
to high demand, which may impact significantly on margins and mean that progress is slower
than would have been anticipated in
previous scenarios and forecasts. However,
firms working on general repairs and
maintenance are likely to find that activity
levels remain subdued through the next
12-18 months. After 15.0% growth this
year, output is expected to rise by 5.0%
in both 2022 and 2023, again focusing on
cladding remediation.
The key concerns within construction
remain within the commercial sector,
which is the third-largest construction
sector and 31% of its activity is in Greater
London. Activity remains considerably
below pre-coronavirus levels. Commercial
output in February 2021 was 16.6%
9
lower than a year earlier. Activity continues on projects signed or started prior to the
initial lockdown in addition to small commercial units in local communities serving a higher
proportion of people working from home. However, activity remains subdued on smaller
commercial units in urban centres, particularly London. In addition, productivity on larger projects
remains 10%-15% lower than pre-coronavirus, particularly tower projects in London that often
involve multiple groups of trades operating in small, tight spaces that make social distancing
difficult.
Near-term, there are still concerns regarding a lack of new projects in the pipeline. The largest fall
has been for small commercial projects, new contracts valued less than £10 million, particularly in
urban centres. This is unsurprising given the impact of the three lockdowns on person-to-person
interaction services such as in-store retail, cafes, bars, restaurants, hotels, and leisure facilities.
Whilst this activity may return, the projects are not currently in the pipeline and without these
contract awards, activity down on the ground from this would be unlikely to occur this year.
However, larger problems exist in the medium-term. The assumption made by the CPA is that
even as social distancing restrictions ease and vaccine rollout continues to be successful, the
majority of office workers that were working at home in the first quarter of 2021 will only be
returning to offices 2-3 days per week given the cost savings for employees and companies,
despite inevitable expected government moral pressure to ‘go back to the office’. This implies
that demand for existing commercial space is unlikely to return to pre-coronavirus levels over
the forecast period. Not only the office space but all the retail and leisure space associated with
workers that commute and travel internationally. It also implies that commercial developers will
have to look at changes in use for their commercial space, which may provide a small pipeline
of work, converting existing facilities to either residential or warehousing and logistics. However,
this is not a panacea given that urban centre demand for flats is currently falling due to the lack
of need for some workers to be close to the office and with the increase in unemployment
so far focusing on younger people that tend to live within cities and tend to be renters. Also, a
permanent fall in demand for existing commercial space also implies that there will be subdued
demand for new commercial space, unless commercial developers are willing to take a large hit
to rents, and consequently, property values to increase take-up of existing and potential new
commercial space. Overall, commercial output in the main scenario is expected to rise by 4.5%
in 2021 after falling 18.4% in 2020. Even with growth of 3.2% in 2022 and 1.7% in 2023, output
at the end of the forecast period is still expected to be 10.5% lower than in 2019 despite three
consecutive years of growth.
•
O verall, the CPA main forecast anticipates
construction output in 2021 rising by 12.9%.
•
T he largest growth rates in 2021 are expected
to be in infrastructure (29.3%), public housing
rm&i (15.0%) and industrial (18.7%).
•
T he CPA main forecast anticipates
construction output in 2022 rising by 5.2%.
•
The largest growth rates in 2022 are expected
to be in public housing (10.0%) and industrial
(8.5%).
10Construction Industry Forecasts - Spring 2021
2019 2020 2021 2022 2023
% annual change Actual Actual Estimate Forecast Projection
Housing
Private 38,070 31,024 35,367 38,197 39,725
4.5% -18.5% 14.0% 8.0% 4.0%
Public 6,812 4,858 5,587 6,145 6,391
16.0% -28.7% 15.0% 10.0% 4.0%
Total 44,882 35,882 40,954 44,342 46,116
6.1% -20.1% 14.1% 8.3% 4.0%
Other New Work
Public Non-Housing 10,126 9,313 10,267 10,433 10,751
-2.1% -8.0% 10.2% 1.6% 3.0%
Infrastructure 22,252 21,388 27,665 29,294 30,345
3.0% -3.9% 29.3% 5.9% 3.6%
Industrial 5,555 4,561 5,414 5,872 5,935
4.4% -17.9% 18.7% 8.5% 1.1%
Commercial 29,353 23,952 25,024 25,826 26,258
-2.2% -18.4% 4.5% 3.2% 1.7%
Total other new work 67,286 59,214 68,370 71,425 73,289
0.0% -12.0% 15.5% 4.5% 2.6%
Total new work 112,168 95,096 109,324 115,767 119,404
2.4% -15.2% 15.0% 5.9% 3.1%
Repair and Maintenance
Private Housing RM&I 22,071 20,072 22,481 22,705 23,160
0.1% -9.1% 12.0% 1.0% 2.0%
Public Housing RM&I 7,931 6,993 8,042 8,444 8,866
0.4% -11.8% 15.0% 5.0% 5.0%
Private Other R&M 14,177 12,424 13,620 14,966 15,265
-0.4% -12.4% 9.6% 9.9% 2.0%
Public Other R&M 5,461 5,404 5,849 5,919 5,978
5.6% -1.0% 8.2% 1.2% 1.0%
9,671 9,996 10,005 10,370 10,422
Infrastructure R&M
1.7% 3.4% 0.1% 3.6% 0.5%
Total R&M 59,311 54,890 59,997 62,405 63,692
0.8% -7.5% 9.3% 4.0% 2.1%
TOTAL ALL WORK 171,479 149,986 169,321 178,173 183,096
1.8% -12.5% 12.9% 5.2% 2.8%
Source: ONS, Construction Products Association
11Key Issues Imported Product Supply Constraints The sharp recovery in construction sectors such as housing new build and repair, maintenance and improvement over the last nine months not only in the UK but also in many key global construction markets such as the US and China has led to increases in cost and extended lead times for some key construction products such as paints and varnishes, timber, roofing materials, copper, steel and polymers. In addition, delays in shipping and sharp increases in shipping costs have also added to imported product issues. The supply constraints will not improve significantly in the next 3-6 months and the extent of constraints may hinder the ability of construction activity to increase in line with our forecast. Margins Even if construction output can grow in line with the forecast, many imported construction products have experienced significant double-digit increases in price since Summer 2020. This will inevitably have an adverse impact on housebuilder and contractor margins. Margins are also likely be affected by sharp increases in insurance costs. Previous experience has shown that when housebuilders and major contractors experience a potential significant hit to margins, issues are pushed down onto firms in the supply chain that are least able to cope with a cut in revenue and it may harm their financial viability at a time when workloads are rising. Two-Speed Housing Market Currently there appears to be strong demand for houses, particularly outside the capital, as increased working from home has led many potential home owners to look further away from their office than may have been the case pre-coronavirus. In addition, increased working from home has also led many potential homeowners to look for increased space. However, this rise in demand has been at the expense of demand for flats, particularly in urban centres such as London. In addition, although unemployment has not increased sharply as yet, the burden of the initial job cuts has so far fallen primarily on younger people, which lowers the demand for rental properties, buy-to-let and first-time buyer properties. Spending Patterns DIY and rm&i demand has been buoyed by increased time spent at home for those able to work from home and increased domestic office space requirements. However, if normal spending patterns return in the Summer as the economy recovers and vaccine use becomes widespread then will there be a shift away 12
from DIY and rm&i, reducing activity in both? Currently, the Bank of England estimates that households have an additional £160 billion in savings and, consequently, at this point the CPA’s assumption is that households have sufficient finance available for both investment in their homes and traditional spending provided that unemployment rates do not increase significantly. Government Policy Reliance The recovery in construction activity since Summer 2020 has been heavily reliant on government funding, policy and stimulus. Directly, government is sustaining construction activity via infrastructure funding and HS2 in particular, Europe’s largest construction project. However, HS2 is once again late and subject to further cost overruns as has proven the case with most major government infrastructure. Given that infrastructure is currently a key driver of construction growth and the forecast, this provides a major risk. Indirectly, from the economy-wide point of view, government has prevented sharp rises in unemployment through the Coronavirus Job Retention Scheme (furloughing) and the Self-Employment Income Support Scheme, which have helped to sustain consumer confidence and demand for housing new build and rm&i. However, these schemes come to an end on 30 September 2021 (see Economy). The end of the schemes may lead to sharp rises in unemployment, albeit not as sharp as initially expected when the schemes were due to end in Autumn 2020, but may still have a negative impact on consumer confidence and spending unless further stimulus is provided if needed. In addition, despite the frequent government announcements and rhetoric regarding Net Zero and decarbonisation, activity on the ground has not matched this. The government’s Green Homes Grant has now been cancelled after policy implementation failures and a key risk going forward will be whether future government decarbonisation schemes also experience similar problems to the Green Deal, Feed- in-Tariffs, CERT and Green Homes Grant. As a result, the forecasts only take account of decarbonisation schemes when the CPA has clearly seen whether activity on the ground matches the announcements. In addition, government has directly stimulated the housing and house building markets through the stamp duty holiday and the first phase of Help to Buy respectively. Both of these were extended earlier this year but the key question will be whether government will provide additional stimulus given that there are concerns regarding whether the current high level of demand in the housing market can be maintained after the schemes end. 13
Productivity Anecdotally, productivity on site initially fell by as much as 30%-40% dependent on the site in April and May 2020 due to social distancing and other safety measures. This has reduced significantly since the first lockdown due to easing of social distancing and other safety measures, combined with increased working hours on many sites but it still appears to be around 10%-15% lower on new build, particularly in the commercial sector. This still means construction activity will take longer and cost more at least initially. In the medium-term, it is likely that contractors will be innovative and find ways of reducing the productivity loss especially as they get used to the new ways of working but if not then there will be serious issues regarding delayed work on existing contractors and who will be paying the additional cost. Commercial Space Reuse If increased working from home and spending online persists long-term then this raises key questions over existing demand for offices, retail and leisure space, particularly within city centres. As a result, commercial developers will be keen to find a higher rate of return by shifting to reusing existing space for residential or warehousing and logistics but how long will this take? 14
Upper Scenario
Assumptions
• Economic activity recovers more quickly from
2021 Q1 as social distancing restrictions ease
•
Unemployment only rises marginally after the
extension of the Coronavirus Job Retention
Scheme (furloughing) and Self-Employment
Income Support Scheme
•
Property transactions continue to remain above
pre-Covid-19 levels even after the end of the
stamp duty holiday and the first phase of Help to
Buy
•
Consumer spending on non-essential items and
big-ticket items rises sharply from 2021 Q2
•
Lending to businesses rises from 2021 Q2 as firms
respond to rising sales and longer term growth
prospects
•
Business investment recovers after 2021 Q1 in
particular due to large firms taking advantage of
the ‘super-deduction’
Key Effects
•
From a low base following last year’s fall, construction output rises by 14.5% in 2021 and
increases a further 5.8% in 2022 and 3.3% in 2023. Total output at the end of 2023 is
anticipated to be 9.5% higher than during 2019, prior to any social distancing restrictions
•
Private housing output continues to be buoyant in 2021, rising by 15.0% as the stamp duty
holiday and Help to Buy extensions continue to buoy the housing and house building markets.
Output is anticipated to increase a further 9.0% in 2022 and 2.0% in 2023 leading activity at
the end of the forecast period to be 4.2% higher than in 2019, pre-Covid-19
Investment in new additional commercial offices, retail and hotel space continues to be
•
adversely affected by the decline in consumer and business confidence during 2020 Q4 and
2021 Q1 before picking up in line with UK economic growth. Commercial output is forecast
to rise for three consecutive years, by 6.1% in 2021, 4.9% in 2022 and 3.4% in 2023. Despite
this, output at the end of 2023 is expected to remain 6.1% lower than in 2019
Private housing rm&i output is expected to benefit from the buoyant housing market near-
•
term as homeowners refurbish newly purchased properties. The desire for additional space is
also expected to fuel refurbishment and DIY. This is despite the end of lockdowns and return
to normal patterns of in-store retail spending as households have built up sufficient savings
over the past year to fund retail sales, hospitality and refurbishment. Private housing rm&i
activity is expected to rise by 14.0% in 2021, 3.0% in 2022 and 3.0% in 2023, leaving output
10.0% higher than in 2019
15Construction Industry Forecasts - Spring 2021 - Upper Scenario
2019 2020 2021 2022 2023
% annual change Actual Actual Scenario Scenario Scenario
Housing
Private 38,070 31,024 35,678 38,889 39,666
4.5% -18.5% 15.0% 9.0% 2.0%
Public 6,812 4,858 5,587 6,425 6,810
16.0% -28.7% 15.0% 15.0% 6.0%
Total 44,882 35,882 41,264 45,313 46,477
6.1% -20.1% 15.0% 9.8% 2.6%
Other New Work
Public Non-Housing 10,126 9,313 10,451 10,695 11,096
-2.1% -8.0% 12.2% 2.3% 3.8%
Infrastructure 22,252 21,388 28,084 29,916 31,519
3.0% -3.9% 31.3% 6.5% 5.4%
Industrial 5,555 4,561 5,534 5,891 6,054
4.4% -17.9% 21.3% 6.4% 2.8%
Commercial 29,353 23,952 25,414 26,652 27,555
-2.2% -18.4% 6.1% 4.9% 3.4%
Total other new work 67,286 59,214 69,483 73,153 76,224
0.0% -12.0% 17.3% 5.3% 4.2%
Total new work 112,168 95,096 110,747 118,467 122,701
2.4% -15.2% 16.5% 7.0% 3.6%
Repair & Maintenance
Private Housing RM&I 22,071 20,072 22,882 23,569 24,276
0.1% -9.1% 14.0% 3.0% 3.0%
Public Housing RM&I 7,931 6,993 8,392 8,643 8,903
0.4% -11.8% 20.0% 3.0% 3.0%
Private Other R&M 14,177 12,424 13,667 14,623 15,062
-0.4% -12.4% 10.0% 7.0% 3.0%
Public Other R&M 5,461 5,404 5,849 6,024 6,145
5.6% -1.0% 8.2% 3.0% 2.0%
9,671 9,996 10,196 10,400 10,608
Infrastructure R&M
1.7% 3.4% 2.0% 2.0% 2.0%
Total R&M 59,311 54,890 60,986 63,260 64,993
0.8% -7.5% 11.1% 3.7% 2.7%
TOTAL ALL WORK 171,479 149,986 171,732 181,726 187,694
1.8% -12.5% 14.5% 5.8% 3.3%
Source: ONS, Construction Products Association
16Lower Scenario Assumptions Economic activity recovers quickly in 2021 Q2 • but then slows from the end of Q3 as increasing concerns over vaccine-resistant Covid-19 variants lead to a rise in infections and fall in consumer and business confidence • Unemployment rises sharply after the CJRS and SEISS end in Autumn 2021 • Property transactions slow after the end of the stamp duty holiday and the rise in unemployment • Consumer spending increases sharply in 2021 Q2 but then slows from Autumn due to falling consumer confidence and rising unemployment • Lending to businesses rises in 2021 Q2 and Q3 but then slows in response to slower growth in economic activity and consumer spending • Business investment increases sharply in Q2 before firms once again focus on near-term cost cutting rather than longer-term planning in response to slower growth Key Effects • Construction output rises by 9.6% in 2021 and 4.4% in 2022. However, despite further growth of 2.9% in 2023, total output at the end of 2023 is anticipated to only be 3.0% higher than four years earlier, in 2019, prior to Covid-19 social distancing restrictions • Private housing output growth slows after the end of the stamp duty holiday and current version of Help to Buy. Overall, output still rises by 12.7% in 2021 from a low base in 2020 (in which output fell by 18.5%). Private housing output is anticipated to increase 6.0% in 2022 and 5.0% in 2023 but even then output will still be only 2.2% higher than in 2019 • A pickup in new investment in commercial offices, retail, leisure and hotel space is adversely affected by a fall in consumer and business confidence and spending from Autumn 2021. Commercial output only rises by 2.3% in 2021 after the 18.4% fall in 2020. Despite growth of 2.7% in 2022 and 2.1% in 2023, output at the end of next year is still expected to be 12.4% lower than pre-Covid-19 Private housing rm&i is likely to suffer medium-term from the rise in unemployment, a fall • in consumer confidence and spending plus a slowdown in property transactions. Although output in the lower scenario rises by 9.8% in 2021, 2.0% in 2022 and 3.0% in 2023, overall private housing rm&i output at the end of the forecast period in 2023 is only 4.9% higher than in 2019 17
Construction Industry Forecasts - Spring 2021 - Lower Scenario
2019 2020 2021 2022 2023
% annual change Actual Actual Scenario Scenario Scenario
Housing
Private 38,070 31,024 34,964 37,062 38,915
4.5% -18.5% 12.7% 6.0% 5.0%
Public 6,812 4,858 5,490 5,764 6,110
16.0% -28.7% 13.0% 5.0% 6.0%
Total 44,882 35,882 40,454 42,826 45,025
6.1% -20.1% 12.7% 5.9% 5.1%
Other New Work
Public Non-Housing 10,126 9,313 9,865 9,917 10,252
-2.1% -8.0% 5.9% 0.5% 3.4%
Infrastructure 22,252 21,388 25,746 27,492 27,843
3.0% -3.9% 20.4% 6.8% 1.3%
Industrial 5,555 4,561 5,203 5,626 5,773
4.4% -17.9% 14.1% 8.1% 2.6%
Commercial 29,353 23,952 24,507 25,165 25,702
-2.2% -18.4% 2.3% 2.7% 2.1%
Total other new work 67,286 59,214 65,320 68,200 69,570
0.0% -12.0% 10.3% 4.4% 2.0%
Total new work 112,168 95,096 105,774 111,026 114,595
2.4% -15.2% 11.2% 5.0% 3.2%
Repair & Maintenance
Private Housing RM&I 22,071 20,072 22,039 22,480 23,154
0.1% -9.1% 9.8% 2.0% 3.0%
Public Housing RM&I 7,931 6,993 7,832 8,067 8,228
0.4% -11.8% 12.0% 3.0% 2.0%
Private Other R&M 14,177 12,424 13,046 14,089 14,512
-0.4% -12.4% 5.0% 8.0% 3.0%
Public Other R&M 5,461 5,404 5,674 5,788 5,904
5.6% -1.0% 5.0% 2.0% 2.0%
9,671 9,996 9,996 10,196 10,298
Infrastructure R&M
1.7% 3.4% 0.0% 2.0% 1.0%
Total R&M 59,311 54,890 58,588 60,620 62,097
0.8% -7.5% 6.7% 3.5% 2.4%
TOTAL ALL WORK 171,479 149,986 164,362 171,646 176,691
1.8% -12.5% 9.6% 4.4% 2.9%
Source: ONS, Construction Products Association
18Economy
UK GDP is expected to rise by 6.5% in 2021 and 5.4% in 2022, assuming that the
successful vaccine rollout continues and that no vaccine-resistant Covid-19 variants
become prevalent.
This economic growth over the next two years is similar to the previous scenarios but with
a change in profile given that the CPA is more optimistic regarding UK economic growth
this year due to the vaccine rollout and boosts from government stimulus in Budget 2021.
However, slower growth rates are expected from next year due to anticipated government
tax rises and tightening of spending. Despite the more positive outlook near term, many
uncertainties remain; the rate of recovery in consumer spending and non-essential retail,
recovery in business investment and the impact of government cutting its stimulus for
employment (furloughing) and the housing market.
The UK economy in Spring 2021 is in a considerably better situation compared with the last
set of CPA scenarios published in Winter. The UK’s vaccine rollout has so far been a greater
success than initially anticipated. Despite the third national lockdown, UK economic activity
in the first quarter of 2021 is likely to fall less than initially expected due to a higher degree
of business continuity, with many firms adjusting to operating online or for click and collect,
whilst the vast UK government spending on the Test and Trace system and a vaccine rollout
has also boosted UK economic activity. The Chancellor’s Budget 2021 has also provided
various stimulus to boost near-term economic activity and employment, the most important
of which has been the extensions to the Coronavirus Job Retention Scheme (furloughing)
and the Self-Employment Income Support Scheme until the end of September 2021. These
will prevent sharp increases in unemployment and help to sustain consumer and business
confidence and spending. The Chancellor’s ‘super-deduction’, announced in Budget 2021 is
also likely to boost business investment substantially in 2021/22 and 2022/23. However, the
Chancellor also signalled medium-term tax rises are on the way, which may restrict growth
prospects with most tax allowances remaining the same for four years and an announcement
that the main rate of corporation tax will rise from 19.0% to 25.0% from 2023.
The key impacts of Brexit on the UK
economy following the end of the
implementation period on 31 December
2020 have largely been restricted to
firms struggling with the additional
administration and certifications. This has
primarily affected Small and Medium-
sized Enterprises (SMEs) trading with the
EU, firms that are exporting between
GB and Northern Ireland and firms
dealing with goods that require even
more certifications and checks such as
fresh food. The worst impacts have been
on firms facing a combination of these
issues. Some other firms have reported
isolated issues, particularly with lorry
trade and a lack of EU drivers. However,
the majority of firms have not reported
key issues as yet.
19The CPA’s previous publications since
Spring 2020 have focused on providing
‘scenarios’ rather than ‘forecasts’ due to the
unprecedented nature of the coronavirus
pandemic and the associated high level
of uncertainty regarding restrictions,
which was vitally important for business
planning as the CPA scenarios in Spring
2020 included a scenario taking account
of a second wave of coronavirus infections
and subsequent lockdowns. However,
going forward, the CPA is returning to
forecasts with an upper and lower scenario
(providing the 95% bounds to the forecast)
on the assumption that the vaccination roll
out continues to be successful, that there are no vaccine-resistant variants and the number
of coronavirus infections remains low. The government published a roadmap for relaxing
restrictions on 21 February 2021 and on 5 April 2021 (re)confirmed the easing of further
restrictions in April, which points towards the majority of the UK economy re-opening by
mid-May, and the remaining restrictions set to fall away on 21 June.
The easing of social distancing restrictions during the second quarter of this year is likely
to lead to a sharp, immediate rise in consumer spending in non-essential retail, leisure
and hospitality given a strong consumer appetite, illustrated by high and rising consumer
confidence, combined with the high level of savings that households have built up over the
past year to fund spending. However, tourism and travel outside of the UK are likely to
recover more slowly and be dependent on restrictions over testing and quarantines, which,
in turn, is likely to be dependent on the extent to which coronavirus infections rise in other
countries.
The CPA forecasts that UK GDP will rise 6.5% in 2021. The growth in 2021 is entirely driven
by the final three quarters of the year with a fall in UK GDP in Q1 dragging down the overall
figure. UK GDP is expected to increase a further 5.4% in 2022 as it returns to, and surpasses,
its pre-coronavirus level next year.
UK GDP forecasts for 2021 from the main macroeconomic forecasters were determined
Economic Indicators
2019 2020 2021 2022 2023
Actual Actual Estimate Forecast Projection
GDP 1.4% -9.8% 6.5% 5.4% 2.0%
Fixed Investment 1.5% -8.8% 7.0% 6.0% 2.4%
Household Consumption 1.1% -10.6% 5.6% 4.0% 2.0%
Real Household Disposable Income 1.9% 0.1% -1.0% 2.7% 2.2%
Government Consumption 4.0% -6.5% 12.5% 0.5% 1.5%
CPI Inflation 1.8% 0.8% 1.5% 2.3% 1.8%
RPI Inflation 2.6% 1.5% 2.3% 3.0% 2.6%
Bank Base Rates - June 0.75% 0.10% 0.10% 0.10% 0.1%
Bank Base Rates - December 0.75% 0.10% 0.10% 0.10% 0.1%
Source: ONS, Construction Products Association
20before the Office for National Statistics (ONS) published the UK GDP figure for January 2021, which was considerably more optimistic than forecasters were expecting. As a result, the next forecasts from the main macroeconomic forecasters are likely to be revised upwards for this year. The ONS reported that UK GDP fell by 2.9% in January 2021 compared with December, due to the impacts of the third national lockdown. However, the consensus in March before the ONS data were published was that UK GDP would fall by 4.0% in January 2021 and the Office for Budget Responsibility forecast in March that UK GDP would fall by 5.0%. The HM Treasury consensus of UK macroeconomic forecasters from March 2021 provides the range of different forecasts and scenarios from the main forecasters. The high degree of uncertainty is reflected in the variation across the forecasters. Of the main City and non-City macroeconomic forecasters, the average (median) estimate for GDP growth in 2021 is 4.8% with the most pessimistic forecaster anticipating only 2.1% GDP growth this year whilst the most optimistic forecaster was anticipating 6.1% GDP growth this year. It is worth noting that at the time of writing, one of the few forecasters that has revised its forecasts since the ONS’s GDP figure for January was published is Oxford Economics, which in March anticipated 6.8% growth this year compared with its forecast of 5.9% in February. The CPA’s forecast is marginally lower than Oxford Economics’s forecast but is expected to be within the range of macroeconomic forecasts, although at the higher end of forecasts, once HM Treasury publishes the revised consensus forecasts. The CPA has continually highlighted the unprecedented nature of economic activity since coronavirus became a key issue in the UK compared with previous recessions. UK GDP fell by 2.8% in 2020 Q1 and a further 19.5% in Q2 before rising by 16.9% in Q3 and 1.3% in Q4 according to revised figures from the ONS. The falls in the first and second quarters of 2020 are a considerably larger decline than the recession experienced during the financial crisis of 2008/09. During the financial crisis, the UK economy experienced a 5.9% fall in five consecutive quarters whereas on this occasion the fall was 21.8% in just two quarters. However, it also illustrates the different types of recessions. The recession in the first half of 2020 was not due to a lack of demand but rather a public health intervention through social distancing restrictions that led to shutdowns of key sectors of the UK economy, in particular services, which accounts for 81% of UK GDP. The consequence of this was that as the social distancing restrictions eased following the initial lockdown, not only did economic activity start to recover rapidly but it was boosted by pent-up demand that could not be enacted between late March and mid-May. The second quarter of 2021 is likely to see a boost in consumer spending due to the inability to spend in the first quarter of 2021. Another key difference between the recessions is the extent of government policy mitigation and stimulus that has been announced. The government’s Coronavirus Job Retention Scheme (CJRS), or furloughing as it is often referred to, has been extended for a further five months from May until the end of September 2021. It will continue in its current form with employees receiving 80% of their current salary for hours not worked and there will be no employer contributions beyond National Insurance contributions (NICs) and pensions required in April, May and June. From July, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September, as the economy reopens. 21
In addition, government is also providing a fourth and fifth grant under the Self- Employment Income Support Scheme (SEISS). The fourth SEISS grant will be worth 80% of three months’ average trading profits, capped at £7,500 in total. The grant will cover the period February to April, and can be claimed from late April. Self-employed individuals must have filed a 2019/20 Self Assessment tax return to be eligible for the fourth grant. This means that over 600,000 individuals may be newly eligible. The fifth and final SEISS grant covers May to September. The value of the grant will be determined by a turnover test: people whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £7,500. People whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850. The final grant can be claimed from late July. The CJRS and SEISS have been successful in preventing unemployment from rising sharply as would normally be expected given the extent of the fall in UK economic activity. The CPA now expects that the UK unemployment rate will rise to 6.5% after the end of the CJRS and SEISS before falling back down to 5.3% in 2022 and 4.7% in 2023. The rises in unemployment after the CJRS and SEISS end are likely to focus on in-store non-essential retail, food and accommodation, hospitality and tourism-related activities, which are the sectors most affected by the social distancing restrictions. In addition, the unemployment rises are likely to focus on younger workers in urban centres that tend to be renters rather homeowners. As a result, the rise in unemployment is unlikely to have significant impacts on house price inflation, particularly for houses, although there may be negative pressure on demand for flats especially in cities. The latest official data from the ONS on sectors of the UK economy highlights that output in services, which accounts for over 80% of the UK economy, fell by 3.5% in January 2021. The fall in services activity was unsurprising given the national lockdown, which primarily impacts on person-to-person interaction services. Services output in January 2021 was 10.2% below its level in February 2020, pre-coronavirus. The fall in services output was driven by a fall in nine of the 14 sectors with the largest contributor to the fall due to a decline in wholesale and retail trade although this was offset partially by growth in health output due to the spending on the Test and Trace and vaccine rollout. Services output for the three months to January 2021 fell by 2.4% compared with the three months to October 2020 that was primarily due to a sharp decline in accommodation and food services, which fell by 49.9%. Services output for the three months to January 2021 was 8.8% lower than a year earlier, pre-coronavirus, again due to accommodation and food service activities, which fell by 62.5%. UK industrial production fell by 1.5% in January 2021 and it was 5.0% below the level it was in February 2020, pre-coronavirus. The decline in industrial production was primarily driven by falls of 2.3% in manufacturing and 0.7% in mining and quarrying. However, there was a partial offset to this from a 0.9% rise in electricity and gas plus a 1.2% increase in water supply and sewage. The 2.3% fall in manufacturing output in January 2021 means that it was also 5.7% below its level in February 2020 and the fall in manufacturing during January 2021 was due to lower output in nine of the 13 manufacturing sub-sectors although the largest fall was in manufacturing of transport equipment. 22
Industrial production output for the three months to January 2021 increased by 0.7%
compared with the three months to October 2020. However, unsurprisingly, industrial
production output in the three months to January 2021 fell by 4.1% compared with one year
earlier, pre-coronavirus.
Construction output in January 2021 was 0.9% higher than in December 2020 as activity
picked up after the Winter shutdown between Christmas and New Year. Output in January
was also 3.0% lower than one year earlier (pre-coronavirus) according to the ONS.
The 0.9% monthly rise in construction activity during January 2021 was after a 2.9% fall
in December and was mainly driven by growth in public housing repair, maintenance &
improvement (cladding remediation), commercial and infrastructure.
Construction output in January 2021 remained 3.0% lower than a year earlier despite activity
in repair, maintenance & improvement and infrastructure that is already above pre-coronavirus
levels because output was dragged down by activity in some sectors double-digit lower than a
year earlier; public housing, industrial (lack of factories investment), commercial (offices, retail,
leisure) and public non-housing (education and health).
Private housing output in January 2021 was 0.2% higher than in December 2020 but 7.2%
lower than a year earlier. This is a sharp recovery given that private housing output fell over
60% in April 2020 during the initial lockdown. Output since Autumn 2020 appears to have
stabilised at around 7% lower than pre-coronavirus although continued further housing market
stimulus from government may boost house building levels during the year.
Private housing rm&i output in January 2021 was 4.6% lower than in December 2020 but
remained 7.6% higher than a year ago (pre-coronavirus). It recovered sharply following the
initial lockdown due to a combination of pent-up demand, rising demand for additional space/
workspace especially from those working from home so rm&i activity has focused on outdoor/
office-related space whilst activity such as plumbing and heating is more subdued plus an
inability to spend in-store on non-essential retail, going out and tourism/travel also boosted
rm&i activity. But, private housing rm&i activity peaked in October 2020 so the key question
going forward will be as restrictions ease and homeowners return to spending in stores, cafes,
bars, restaurants and on tourism will there be a shift back away from private housing rm&i this
year especially as the pent-up demand has already fed through.
Commercial construction output in January
2021 was 4.5% higher than in December
2020 (but still lower than in November)
and it was 15.4% lower than it was a year
ago in January 2020 (pre-coronavirus).
In recent months small/medium-sized
commercial offices, retail and leisure
construction activity has been affected
by a lack of new projects to replace
those that have recently finished whilst
activity on larger commercial projects,
especially towers, has suffered from lower
productivity due to social distancing and
other safety measures affecting the number
of different groups of trades in tight spaces
on site. The additional time taken for larger
commercial projects means that projects
due to finish in 2020 are still ongoing and
will cost more, which has also hindered new
investment in larger commercial projects.
23The most recent indicators covering UK economic activity in the key industry sectors are the IHS Markit/CIPS Purchasing Managers Indices (PMI), which are timely surveys of monthly activity across UK Services, Manufacturing and Construction. The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) was 58.9 in March, its highest level since February 2011. The PMI level was supported by increases in growth of output, new orders and employment. A slower decrease in stocks of purchases also had a positive impact on the latest reading compared to one month ago. Manufacturing output increased for the tenth successive month and at the quickest rate since November 2020. Growth was highlighted in both the intermediate and investment goods industries. Consumer goods production returned to expansion following contractions in both January and February 2021. Higher output was linked to improved new order intakes, the vaccine rollout and preparations for the planned loosening of lockdown restrictions. New business rose at the second fastest rate for over three years, with growth registered for consumer, intermediate and investment goods producers. Companies reported improved demand from domestic and overseas clients, rising business confidence and customers ordering early due to expectations of future price rises and further supply chain disruption. New export business rose due to increased demand from Europe, Asia and the US. IHS Markit/CIPS reported that improving global economic conditions underpinned increased optimism and job creation for manufacturing whilst business sentiment was at its highest for seven years. Almost two-thirds of manufacturers expect output to rise over the next 12 months and only 6% expect a contraction. However, supply chain issues remained a constraint on manufacturing during March, disrupting raw material deliveries, production schedules and the onward distribution of finished goods to clients. Given that demand continued to exceed supply, input price inflation accelerated to its highest in over four years, which led to upward pressure on output prices, which rose at its highest rate in four years. The IHS Markit/CIPS UK Services PMI registered 56.3 in March, up from 49.5 in February and given that an index level of 50.0 indicates no monthly change in activity, this represents the first month of increase since October 2020. Rising levels of activity were linked to a recovery in business and consumer spending, whilst some parts of services registered increases due to higher residential property transactions during March. Survey respondents referred to pent- up demand and work on projects that had been delayed at an earlier stage of the pandemic. Stronger client demand and forward bookings in advance of the easing of social distancing restrictions led to a rise in services new work overall for the first time in six months. New business expansion in services was at its quickest rate since August 2020 despite a fall in export sales with a fall in orders from abroad due to either international travel restrictions or Brexit-related issues with sales to EU customers. Services firms also registered an acceleration in costs during March with the rate of input price inflation at its highest for almost three years due to higher fuel, transportation and imported materials prices. As a result, output prices for services firms rose at their fastest rate since November 2017. Overall, services firms were more optimistic for the fifth consecutive month as a result of prospects for the year ahead after the government publishing its roadmap for easing social distancing restrictions and the successful vaccine rollout. UK construction activity rose in March 2021 according to the IHS Markit/CIPS UK Construction PMI. March’s 61.7 index level shows UK construction growing at its fastest rate since September 2014 compared with February’s index level of 53.3 and growth in all three key sectors; housing, commercial and civil engineering. 24
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