As the UK emerges from the peak of the Covid-19 pandemic, the government has announced plans to restart the economy following the three-month lockdown. The UK is currently the worst hit country in Europe, reporting over 300,000 cases and more than 40,000 deaths due to the virus outbreak. The economic cost has also been severe, with large parts of the economy having been closed since the end of March. In the first quarter, GDP fell by 2.2% on a quarterly basis, the largest quarterly contraction since the financial crisis in 2008. However, as the number of deaths and new cases recorded continue to decline, large parts of the economy are set to reopen starting from 4 July.

Prime Minister Boris Johnson has announced plans to accelerate an estimated £5bn on infrastructure projects, including £1.5bn on hospitals, £100m for new roads and over £1bn on a school building project. The prime minister has also announced a new ‘Project Speed’ task for force, which will oversee the fast tracking of major projects in the country. The prime minister’s announcement comes following a revision of Q1 GDP that showed the largest quarterly contraction since 1979. With GDP expected to shrink faster in Q2 as the lockdown’s full effects are realised, the government believes it must act quickly and decisively to reverse the economic losses. The government has doubled down on its election pledge to ‘level up’ parts of the UK, by increasing the ‘Stronger Towns Fund’.

The construction industry was also adversely affected in the first quarter because of the lockdown measures and virus outbreak, with output declining by 3% in the first quarter of the year. However, the increase in spending for key infrastructure such as roads and railways and for new homes is expected to support growth in the construction industry. The government’s infrastructure plans suggest it hopes a building boom will drive economic growth in the latter half of the year as the economy emerges from the lockdown. There is also hope amongst policymakers that increased spending on roads and rail will improve connectivity across the country, which could also spur productivity. The infrastructure construction sector has fared better in the first quarter in comparison to the wider construction sector, one explanation for the infrastructure outperforming the sector as a whole is because works in this sector are more capital intensive, sites are also larger, which makes it easier to socially distance. The infrastructure sector alongside the residential sector are set to be the main beneficiaries from the government’s spending plans announced on 30 June.

The government’s announcement indicates that unlike in the previous recession, the government has no plans to slash spending and embark on an austerity programme post-Covid-19 outbreak. The Chancellor, Rishi Sunak, is set to unveil a further economic response plan, which is expected to include an extension of the government’s ‘Job Retention Scheme’. Reflecting the severe impact of the containment measures and the closure of construction sites since the start of the outbreak, GlobalData has revised down its forecast for construction industry growth in 2020 to -10.3%, the forecast assumes that there is unlikely to be a second wave of the virus outbreak given the government’s containment measures are still in place. A recovery in the second half of the year is likely if that assumption holds, particularly as sites largely reopened in May and June. Given the historically low output figures in April, there will be strong monthly sequential growth in the next few months. Although the UK will recover, to post annual average growth of 3.0% in 2021-2024, in real terms total construction output will only return to 2019 levels in 2024, reflecting the wider economic challenges that will prevent a fast recovery.