NEWS
Construction recession set to hit industry until 2025
forecast three months ago, 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. Although UK interest rates are now likely to have reached a peak that is lower than previous expectations, it is now anticipated that they will remain at this level for longer, until 2025, due to stubborn infl ation. Consequently, the UK economy is expected to fl atline throughout 2024, holding back the recovery in major sectors of construction activity such as new build housing and repair, maintenance and improvement (rm&i) to 2025. Even in infrastructure, 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 both the largest construction sector and the sector forecast to be the worst aff ected by prevailing economic conditions this year. The sharp increase in mortgage rates since the end of last year has led to house builders reporting a 30-40% fall in demand and it has remained weak throughout Summer and early Autumn. Interest rates and mortgage rates are expected to remain high for longer and adversely aff ect demand throughout next year. As a result, after a 19.0% fall in completions and output this year, completions are forecast to remain fl at in 2024 with no growth until 2025. Whilst the balance of risks to private housing clearly remains
A 6 November 2023 •
www.acr-news.com
ccording to the CPA’s Autumn Forecasts, construction output is expected to fall by 6.8% in 2023, similar to the 7.0% contraction
on the downside, a positive policy stimulus in the Chancellor’s Autumn Statement would help demand to start to recover next year. Private housing rm&i is the second-largest construction sector and activity continues to be on a general downward trend after the ‘race for space’ spike between 2020 and 2022. Output is forecast to fall 11.0% this year. As with new build housing, the weak economic backdrop in 2024 will limit the pace of recovery, with a weaker housing market reducing transactions-related improvements and a notable fall in new planning applications for larger improvements work. This will keep construction output fl at in 2024, which is a downgrade from the 2.0% growth expected in the Summer Forecasts. Energy-effi ciency retrofi t – primarily insulation and solar photovoltaic work – continues to remain strong; however, whilst there are government programmes such as ECO4, the Great British Insulation Scheme and the Boiler Upgrade Scheme in place, there are still questions over their delivery. In the third-largest sector, infrastructure activity
remains strong down 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. Unfortunately, however, following on from earlier announcements of delays to major road and rail schemes, 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 strong cost escalation and viability concerns. The impact of the government’s 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 Prime Minister are unlikely to start before 2029, at the earliest, if they occur at all. Overall, infrastructure output is expected to fall by 0.5% in 2023, from its current high level, before remaining broadly fl at (-0.1%) in 2024. Commenting on the Autumn Forecasts, CPA Head of Construction Research, Rebecca Larkin said: “With only a couple of months left in a diffi cult 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 signifi cant 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 infl ation 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 fi nancing 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 fl atlining 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 off shore wind projects from the near-term pipeline and has further weakened the industry’s confi dence that government announcements can translate into tangible delivery.”
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