The economic recovery from Covid restrictions continues, although supply chain issues, inflation, and labour shortages show that lockdowns come with lingering economic consequences. At this stage the most serious issue to hand is inflation, as its trajectory implies increased interest rates, increases that will be uncomfortable for economies and industries that have become very familiar with near zero interest rates.
After declining by 15% in 2020, GB construction output is estimated to have risen by 14% in 2021, while the outlook for 2022-2024 is one of marginal growth. Measured in current prices, total industry output is forecast to increase by almost 10% over the years 2022-2024 – that equates to £16.7 billion.
Two themes look set to dominate over the medium term – the ability of Government to deliver on its planned increases in public sector investment, and the impact of increased interest rates on key sectors such as housing and commercial property. These markets have become so used to low interest rates that one imagines a base rate move to 1% – 1.5% will be uncomfortable.
In line with the above we expect an absence of growth beyond the short-term in the commercial sector, while in the private housing market a cooling is forecast from the 2020/2021 boom, especially when viewing transactions. While prices have in many senses overshot as a result of the stamp duty holiday and very lax monetary policy, large house price falls are not expected.
Infrastructure, which is estimated to have increased by 36% in 2021, is forecast to experience continued buoyancy to 2024/2025, with transport investment a key factor here. Public non-housing can look forward to sustained growth in line with planned increases in capital works. Industrial building is forecast to increase markedly, in both the factory and warehouse markets.