The UK economy was severely impacted by the virus outbreak and the political uncertainty over the future relationship between the UK and the EU. The deterioration in economic activity also impacted the construction industry, which is expected to have contracted by 15.1% in 2020. The construction sector was deeply scarred by the virus outbreak and the subsequent lockdown measures imposed across the country. However, the industry is expected to pick up this year, with construction work permitted to continue during the new nationwide lockdown that came into effect in early January.
The success of the UK Government to avoid a ‘no-deal’ Brexit scenario by reaching an agreement with the EU on a new trade deal also bodes well the industry’s prospects. The trade deal ensures zero tariffs on all goods and continued market access for UK firms which aim to trade with the EU. The trade agreement was welcomed by industries bodies, with the Federation of Master Builders (FMB) stating that the industry would welcome the certainty that the deal will provide. However, while the deal is preferable to a no-deal Brexit scenario, companies importing from the EU will face additional checks, and firms in the sector will also find it more difficult to hire workers from the EU, with the end of free movement of labour between the EU and UK.
Despite the added difficulties of the new trading arrangements and the new lockdown measures imposed by the government on 5 January, the construction industry is expected to recover in 2021. The industry will be supported by the government’s plans to invest in upgrading the country’s infrastructure. In November 2020, the government announced plans for the establishment of a new national infrastructure bank headquartered in the North of England. The government hopes the creation of the infrastructure bank will support its goal of ‘levelling up’ the country, and the UK Chancellor, Rishi Sunak, has set aside $36.8bn in the National Infrastructure Strategy published in November 2020. The government’s plans provide a clear commitment to the private sector that it aims to invest significantly in upgrading the country’s infrastructure. The industry’s output will also be supported by Bank of England’s accommodative monetary policy, which is expected to support activity in the residential construction sector.
With the mass vaccination programme underway and the new trading relationship established with the EU, the construction industry’s outlook is significantly more positive in 2021. However, the industry faces a difficult start to the year; although work on construction sites is permitted to continue, there could be some disruption given the impact of the lockdown on the wider economy. Despite this, GlobalData expects the construction industry to expand by 6.1% in 2021, following an expected decline of 15.1% in 2020.