UK construction slow down

Growth prospects for the UK’s construction industry in 2018 have been reduced from 1.2% to 0.7% as the country prepares to leave the EU. Though a majority of subsectors have a weak outlook, private housing and infrastructure will likely be the two main drivers of growth. The latter has a forecasted growth of 7.4% in 2017 and 6.4% in 2018.

However, only 9 infrastructure projects reached financial close in the UK so far this year totaling $2.6bn, down from 21 projects worth $5.2bn in 2016 YTD. Infrastructure accounted for 31.8% of the UK’s project finance (PF) investments so far this year, the second YTD period it has fallen behind energy & power (41.5%). Additionally, 84.2% of infrastructure PF volume this YTD was used for refinancing, with the country largely stalling when it comes to new projects.

Europe-wide trend of decline

Infrastructure PF investments have shown a decreasing pattern in other European countries as well. Such investments reached $7.9bn via 30 deals in 2017 YTD, a 59% decrease from the same period last year ($19.1bn via 30 deals). Despite a fall in projects, the UK still accounted for 33.2% of European PF volume with $2.6bn via 9 deals, which is the highest share in the region, followed by Spain (16.7%) with $1.3bn via 6 deals. In comparison, the UK accounted for just 20.1% of volume for all European greenfield infrastructure projects, another indication that new infrastructure in the country is falling behind.

UK greenfield infrastructure projects close to gone

Greenfield infrastructure PF volume for the UK has been falling since 2014 ($5.5bn), and volume this YTD is down 84% year-on-year. Over the past 5 years, the main drivers of greenfield volume have been jumbo projects such as the $1.5bn capital expenditure and the $1.0bn European Investment Bank financing for the Thames Tideway Tunnel Project.

Infrastructure growth in the country seems to be heavily reliant on jumbo projects as well, such as the ongoing High Speed Rail 2 (HS2) with an estimated project cost of around $85.2bn. Though large projects are in the pipeline, including the Hinkley Point C Nuclear Plant and the Heathrow/Gatwick Runway, delays in decision making will likely have a further negative impact on greenfield volume.

Data source: Dealogic, Construction Products Association (forecasts), as of August 10, 2017