NEW research from the Construction Products Association (CPA) has revealed more tough times ahead for the UK construction sector.
According to the CPA’s Autumn Forecasts, construction output is expected to fall by 6.8% in 2023, before a further marginal fall of 0.3% in 2024.
This is a revision down from the 0.7% growth forecast in the summer publication due to a weaker economic backdrop.
The CPA said that while interest rates are likely to have reached a peak that is lower than previous expectations, it is anticipated they will remain at this level for longer, until 2025, due to ‘stubborn inflation’.
A potential flatlining of the UK economy next year could hold back construction activity in areas such as new build housing and repair, maintenance and improvement (rm&i) to 2025. Even in infrastructure, CPA revealed output is now expected to fall marginally as more roads projects appear likely to be pushed back or cancelled than anticipated only three months ago. Nevertheless, activity will remain near the current high levels due to work continuing on major projects already down on the ground.
Private housing is the sector forecast to be the worst affected by prevailing economic conditions this year, while private housing rm&i is said to be ‘on a general downward trend’.
Energy-efficiency retrofit – primarily insulation and solar photovoltaic work – continues to remain strong, however CPA said questions remain over the delivery of certain government programmes.
Infrastructure activity remains strong on the ground due to work continuing on major projects such as HS2 between Old Oak Common and Birmingham, the Thames Tideway Tunnel and Hinkley Point C. However, it appears that more roads projects are being pushed back or cancelled than anticipated in the forecasts in summer, whilst new projects continue to be delayed due to cost escalation and viability concerns.
The CPA added that the impact of the decision to cancel HS2 between Birmingham and Manchester is limited as the majority of this work was planned to occur beyond the forecast period. Similarly, the £36 billion of local and regional projects around the country announced by the PM are unlikely to start before 2029, if at all.
Rebecca Larkin, CPA head of construction research, said, “With only a couple of months left in a difficult year for construction and looking forward to 2024, the evidence suggests it will still be a while before the clouds begin to lift. Both new build housing and rm&i have taken a significant hit from rising interest rates, falling real wages and weak economic growth.
“Although further rises in interest rates now appear off the table, the prospect of rising oil prices keeping inflation elevated suggests rates are likely to remain at peak for longer and throughout next year. This will keep demand subdued for house purchases and improvements. It will also create a step-change in financing costs compared to the record-low rates of the past decade for new commercial and industrial projects that is likely to limit appetite for investment and development.
“With infrastructure now set for two years of flatlining activity, it does shine a light on the importance of major projects as a driver of growth in the sector and for construction overall. In particular, government’s chopping and changing on infrastructure spending decisions this year has removed roads, rail and offshore wind projects from the near-term pipeline and has further weakened the industry’s confidence that government announcements can translate into tangible delivery.”
