Glenigan, one of the construction industry’s leading insight and intelligence experts, has released its widely anticipated UK Construction Industry Forecast 2023-2025. The key take-away from the Forecast is the construction industry will continue to struggle in the face of a challenging economic climate.
It notes that restrained private sector investment, a housing market slowdown, weak UK economic growth, and high interest rates will continue to suppress sector activity for the remainder of this year.
Despite short-term woes, renewed construction growth is forecast for 2024 (+8%) and 2025 (+7%) as the prospect of a recovering economy and market certainty lifts consumer and business confidence, boosting the industry.
This report is predominantly focused on underlying starts (< £100m in value), unless otherwise stated, and contains a comprehensive overview of the current state of the construction industry.
Construction starts have remained weak throughout 2023, with a poor economic outlook putting the brakes on work starting on-site. The fallout from last Autumn’s mini-budget has weighed heavily on private sector activity, made worse by sharp interest rate rises in recent months.
The persistent economic disruption has prompted clients and developers to scale back on planned investments, causing detailed planning consents to fall back 10% during the first nine months of 2023. Main contract awards have also dipped, standing 11% lower during Q.3 2023 than the same time a year ago.
Glenigan predicts a decline across most non-residential sectors during the rest of 2023, with project-starts falling 20%.
Recovery on the horizon
It’s not all bad news, with public sector construction providing a relative bright spot during 2023 as Government underspend was rolled forward to the current financial year, boosting departmental capital programmes.
Despite conditions remaining tough for the rest of 2023, gradual recovery is forecast for 2024 and 2025, with firm development pipelines already pulling through to support a rise in industrial and office starts. Improved consumer confidence and household spending are also expected to feed through to lift activity in consumer-related verticals, including private housing and retail. This is anticipated to have a knock-on effect on investment in logistics facilities from 2024 to meet demand for online retailing.
However, these positive predictions will likely be offset by declines in public sector investment in education and health as government-funded projects are reviewed post-election.
Rollback of major capital projects leaves civils vulnerable
Civil engineering project-starts have declined by an estimated 12% this year as a slowdown in infrastructure approvals during 2022 has impacted the pipeline for 2023.
Utilities project-starts have influenced this figure, posting no growth in 2023 against last year. However, utilities-starts are forecast to return to growth from 2024, in part due to planned water works following investment by the industry regulator.
Importantly, the delivery of existing and planned major capital projects will have a significant influence on sector activity over the forecast period, leaving growth levels vulnerable to a post-election public spending review.
For instance, the Government’s decision to reschedule and scale back the first phase of HS2 construction will reduce its anticipated contribution to civils works over the forecast period. Similarly, the decision to push back on a range of Net Zero targets may also delay investment in renewable energy and the roll-out of EV charging schemes.
Overall, Glenigan forecasts a growth of 17% in 2024, and only 5% in 2025.
Commenting on the Forecast, Glenigan’s Economic Director Allan Wilen says, “After sharp falls in starts and a challenging set of economic circumstances in 2023, construction can expect gradual improvement in market conditions over the next two years. Interest rates now appear to be at their peak, and a gradual easing in rates from 2024 should help to rebuild private investors’ and homebuyers’ confidence and lift private sector activity.
“Civil engineering enjoyed a strong recovery post-pandemic, however, as with most sector verticals, high construction costs are causing investors to postpone projects as the industry navigates uncertain times. Civils starts have declined broadly in 2023 following a decline in main contract awards during the first nine months of the year. However, civil engineering starts are forecast to rebound 17% next year, driven by a strengthening in utilities work and the progression of rescheduled infrastructure projects to site. Less encouragingly, the reprioritisation of public sector resources away from the sector may impact the extent to which major projects will bolster civils going into 2025.”
To request a copy of Glenigan’s UK Construction Industry Forecast 2023-2025 click here.https://www.glenigan.com/market_analysis/construction-industry-forecast-2024-2025/
