UK Chancellor’s infrastructure spending plans expected to provide a significant boost for the construction industry

GlobalData 11 March 2021 (Last Updated March 11th, 2021 13:39)

The UK economy was severely impacted by the virus outbreak and the subsequent lockdown measures, with industry output falling by 13.6% in real terms last year. The construction sector has been deeply scarred by the strict lockdown measures and other restrictions imposed to contain the virus outbreak.

UK Chancellor’s infrastructure spending plans expected to provide a significant boost for the construction industry
Credit: Happy_stocker / Shutterstock.

The UK economy was severely impacted by the virus outbreak and the subsequent lockdown measures, with industry output falling by 13.6% in real terms last year. The construction sector has been deeply scarred by the strict lockdown measures and other restrictions imposed to contain the virus outbreak, and despite the improvement in output in Q3 and Q4 on a Q-o-Q basis, the sector declined by 8.8% YoY in Q3 and 2.8% in Q4.

In response to weakening of the construction industry, the UK government has laid out significant infrastructure spending plans which are expected to provide a boost to the industry in the short and medium run. The plans include the creation of a new Infrastructure Bank, whose remit will be to finance and identify projects that will help the UK in reaching its net-zero emissions target. In total, the bank will have GBP12 billion (US$16.8 billion) at its disposal. The creation of the bank will support growth in the infrastructure and energy and utilities construction sectors over the long run.

The Chancellor, Rishi Sunak, has also announced the creation of eight new freeports in the UK, the construction of which will provide a further boost for the infrastructure construction sector. Alongside the free ports, the government has pledged to develop an offshore wind port hub at the Humberside free port which is expected to create 3,000 jobs in the region. The government’s fiscal spending will provide critical support to the construction industry as it recovers from the sharp decline in 2020. The creation of the Infrastructure Bank and the construction of eight new freeports are part of the government’s wider ‘Levelling Up’ strategy to narrow regional inequality within the UK. Overall, GlobalData expects the infrastructure construction sector to grow by 8.7% in 2021, following a contraction of 3.8% in 2020.

With the mass vaccination programme underway, providing optimism regarding the relaxation of COVID-19 restrictions on economic activity, and with the new trading relationship established with the EU, the construction industry’s outlook is relatively positive. The government has also outlined its exit strategy from the current lockdown measures in place, with the all social distancing measures expected to be lifted by June 2021. The pickup in economic activity, particularly in the second half of the year, will provide an added boost to investor confidence, which should help the recovery in the commercial and residential construction sectors. Overall, although GlobalData expects the UK construction industry to grow by 8% in 2021, in view of the widespread economic disruption caused by COVID-19, it will not be until 2023/2024 that construction output in real terms will return to pre-COVID-19 levels.