New Market Study Published: United Kingdom Infrastructure Report Q4 2013

From: Fast Market Research, Inc.
Published: Mon Sep 16 2013

Even though there is an increasingly positive short-term outlook for the residential and nonresidential sector, growth in the infrastructure segment is going to be the outperformer within the UK construction industry in 2013. We forecast that infrastructure (which accounts for nearly 20% of total construction industry value) will register industry value real growth of 5.2% in 2013, a stark contrast to the 0.9% contraction we expect to see from the residential and non-residential construction segment, which accounts for 80% of total construction sector industry value.

The upwards revision in the residential and non-residential sector is attributable to a growth in demand caused by government schemes and an improving picture in the wider UK economy. Our latest forecast sees the UK's construction sector returning to growth in 2013, a year earlier than previously thought. Real growth will be weak, at just 0.2% year-on-year, although will remain positive throughout our forecast period up to 2022, averaging 1.2%.

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Major developments in the sector:

* We upwardly revised our forecasts for the residential and non-residential sector at the beginning of July 2013, which has subsequently played out. Homebuilders are reporting increased profits as demand has been boosted by the introduction of the Help to Buy Scheme. However, we emphasise the risks of the policy, especially the mortgage guarantee scheme, which is due to be implemented January 2014; this could create a false buoyancy in the market, crashing back to earth once the scheme comes to the end. Commercial and industrial construction also have shown some signs of revival, which, in light of positive economic data for the wider UK economy, looks set to continue over this quarter.
* Growth in the infrastructure sector will be less impressive than it should be, in light of the failure of the National Infrastructure Plan to produce new projects. That said, the government has increased the pipeline of construction projects, published following the government's spending review in June 2013. There will be projects worth GBP30.1bn between 2013 and 2015. The previous pipeline updates in November 2012 had comprised GBP19.2bn-worth of projects for that period. The pipeline was not updated in May 2013. Overall, the latest update showed 1,047 projects worth GDP109.2bn from 2013/14 to beyond 2020.
* Spending plans includes GBP5.8bn on housing, GBP4.9bn on education projects. In line with our view that infrastructure will outperform over our forecast period, by far the largest sector in terms of budgetary allocation is transport, which will see GBP61.9bn of investment.

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