UK Chancellor announces £640bn infrastructure spending plan in Budget

11 March 2020 (Last Updated March 11th, 2020 16:49)

The UK Government has announced a £640 billion ($825 billion) investment spending plan for the current parliamentary term, between 2020 and 2025.

UK Chancellor announces £640bn infrastructure spending plan in Budget

The UK Government has announced a £640 billion ($825 billion) investment spending plan for the current parliamentary term, between 2020 and 2025.

The spending plans will amount to a tripling of average public sector net investment over the last 40 years in real terms. The spending plans announced in the budget on 11 March are in line with pledges by the Prime Minister, Boris Johnson, to ‘level up’ Britain’s infrastructure in the Midlands and North of England.

The ambitious investment plans published in the budget will see the fastest increase in public investment since the financial crisis. Chancellor Rishi Sunak has pledged spending increases on key infrastructure such as roads and railways, as well as on new homes. A £10.9 billion increase in spending on new homes has been earmarked, with a promise to build one million new homes by the end of the current parliamentary term in 2025.

The budget spending plans have been announced at a critical time, with global economic conditions deteriorating significantly amid the coronavirus outbreak, which could yet spread rapidly in the UK. Along with the Bank of England’s surprise announcement of an emergency interest rate cut on the same day as the budget, the Chancellor has pledged considerable tax cuts and spending increases. The coordinated fiscal and monetary policy loosening is likely to have been aimed at reassuring investors and businesses following a turbulent few weeks for markets.

While the spending plans are expected to support the industry, GlobalData holds its current forecast for construction output to expand only by 1% in 2020. The construction industry still faces a very uncertain year with major downside risks associated with the spread of the coronavirus, particularly if workers will be required to self-isolate. Many construction projects would have to be halted temporarily, which would curtail growth.

However, if the virus outbreak to be contained by the end of the second quarter, the industry will gather momentum in the second half and could result in a more positive growth performance than currently predicted for the year as a whole.
The industry also faces still faces Brexit related uncertainty, particularly over the potential impact of a new immigration system, which will come into force in January 2021 and could restrict labour availability.

Nevertheless, the lofty infrastructure spending plans, which were already factored in GlobalData’s latest forecast for 2021 and 2022 with construction output expected to increase by 2.3% and 2.6% respectively, will provide the industry with renewed confidence at a troubled time.