RIDER LEVETT BUCKNALL TENDER PRICE FORECAST UK
Q1 2021
“The first quarter of 2021 is showing brighter prospects as we see the potential end to the COVID -19 restrictions and challenges”
In the first quarter of the UK having left the EU single market and the customs union, any effects of that process have largely been over-ridden by the ongoing fight against the Covid-19 virus.
UK Economy
The recent publication from the Office of Budget Responsibility (OBR) acknowledges the 9.9% fall in UK GDP in 2020, but now forecasts growth of 4% in 2021, with a return to pre-Covid levels by second quarter 2022. The OBR’s view is that although the general economy is weaker in the short term, it is now expected to rebound faster than had been expected in November of last year. The key to returning to a normally-functioning economy is of course mass-vaccination. As at 10 March, the UK had issued 23.5 million vaccinations, as against 68.6 million globally.
Construction industry
In construction, 2020 saw new work volumes falling over 15% on 2019. Volumes of work output, as published by the Office for National Statistics (ONS) recorded falls in all sectors, with the most heavily affected being new private housing and new private commercial works, both down over 18%.
Despite the anticipated recovery for construction projects, some downside risks remain. In January, the Construction Products Association (CPA) reported that 28% of the EU workforce that had been in the UK in January 2020, had returned home (a number that exceeded the overall drop in UK construction employment of 7%), decreasing over the year from 2.31 million to 2.14 million. Aside from immigration and residence rights, there are apparently fears over double taxation. Also of concern is the Construction Leadership Council (CLC) view that as 60% of imported construction materials are EU-sourced there is potential for trade friction at the end of the EU-UK grace-periods.
These labour and materials issues may develop a focus with the expected upturn in construction in the next quarter. Glenigan has forecast a 17% uplift in project starts for 2021, although that must be construed in the context of the 15% fall last year.
New starts and re-established momentum will come, but it will be very sector-specific, a view which is further developed in the following sector and regional commentaries.
The forecast K-shaped or split recovery is continuing in its development, with sectors experiencing significantly varied conditions and expected outcomes:
Furlough scheme extended through to end of September.
Sterling remains low against other world currencies, which has promoted overseas investment.
Subject to a successful vaccination programme, GDP growth is expected but at the end of 2022 will not quite have reached the pre-Covid level.
Many UK key cities have significant shortfalls in Grade A office space, such that demand still remains.
New opportunities are emerging to redress the damage caused to asset values resulting from declining high street
footfall.
Major food retailers continue to develop their estates to solidify shopping habits developed during COVID-19.
Government is still targeting to build 300,000 homes per annum by the mid-2020s.
The transformation and rationalisation of the whole Education sector will continue taking place, to reflect post-Covid circumstances and teaching arrangements.
