Industry Trend Analysis - 2017 Slowdown In Play, Recovery Vulnerable To Brexit - SEPT 2017

BMI View: Non-residential building sectors that we have flagged as being vulnerable to business sentiment have dragged on construction activity over 2017 and we are maintaining our forecasts for a slowdown in the overall industry. Conversely, we are most positive on the rail sector , which continues to yield project opportunities, with additional upside added by the prospect of more private projects and financing in the sector.

We are maintaining our forecasts for 1.4% y-o-y real growth in the UK's construction sector over 2017, as the key areas of weakness we highlighted in the commercial, industrial and residential sectors weigh on the industry. The construction sector grew by 1.8% over H117 in real terms, but we expect growth to slow over the remainder of the year and come into line with our forecasts. Beyond 2017, we forecast a steady recovery in the sector driven by the residential building segment and the implementation of a number of high value infrastructure projects - although we continue to note the downside risk to our outlook posed by the uncertainty of the Brexit process and the continued impact that may have on business investment.

High frequency data shows the industrial sector - a key component of our non-residential building forecast - contracted over the first half of 2017 as the vote to leave the European Union has caused firms cancel or delay investments. Our core view is for the UK to leave the EU in March 2019, and that there is very little chance of the UK remaining as part of the bloc. As such, Brexit will remain a drag on growth into 2018 and 2019 - until there is greater clarity on the circumstances surrounding the UK's departure.

2017 Slowdown Playing Out
Construction Industry Value (GBPbn) and Real Growth (% Change Year-on-Year)
e/f = BMI estimate/forecast. Source: BMI, ONS

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