Home » Construction sector growth to bounce back despite challenges, says report

Construction sector growth to bounce back despite challenges, says report

by Samiyah Mokaddus

Despite stifled growth this year, largely due to soaring costs and supply chains disruptions, the UK construction sector is expected to see a modest bounce back in 2023, according to a new report.

Glenigan‘s newly released UK Construction Industry Forecast 2022-2024 indicates current tough circumstances will give way to a return to growth in the next three years.

The report predicts that 2023 will see a modest 8% increase and a smaller 2% lift in 2024, over 2022 levels. This represents an average rise of 2.6% over the forecast period.

The report is predominantly focused on underlying starts (< £100m in value) and contains a comprehensive overview of the current state of the construction industry.

Significant disruption stifles short-term growth

The next few years will be challenging for the construction industry as a whole, says the report.

The war in the Ukraine is creating considerable economic uncertainty which is having a direct, current effect on output and risks derailing post-COVID recovery.

As a result, overall project starts are forecast to slip back 2%.

Aside from this ongoing conflict, current inflation spikes, higher taxes, and rising mortgage costs are expected to constrain activity in consumer-related areas, such as private housing, retail, and hotel & leisure.

In contrast, a firm development pipeline is predicted to lift industrial and office starts in 2022, as well as government-funded areas such as education, health, and community & amenity.

More positively, the value of project starts is expected to rise in 2023, as the UK economy stabilises and short-term supply chain pressure eases.

However the lingering impact of higher construction, material and energy costs means this growth will be significantly lower than predicted in previous forecasts.

Public sector pick-up

Public sector investment is set to be an important driver for construction activity over the forecast period. However, the latest spending review revealed only modest growth in capital funding for a handful of central government departments over the next three years.

Whilst the value of social housing starts is set to dip almost 10% this year, following a 15% surge in 2021, the vertical is predicted to rally for the remainder of the forecast period, helped by a strong pipeline of already approved projects commencing on site.

Education construction is a vertical predicted to grow significantly over the next few years (av. +8%), partly driven by the government’s commitment to building 500 new schools over the next decade.

This is supported by a modest rise in universities capital spending during the second half of the forecast period.

The outlook for the health sector is also brightening.

Starts remained high in 2021 post-pandemic and the increase in capital funding and a growing development pipeline means the value of starts are expected to remain steady over the forecast period, will slight declines this year (-5%) and next (-6%) .

Focusing on civils and infrastructure, a significant funding increase in areas such as roads, especially to address the maintenance backlog on the nation’s local roads, is helping to lift the value of project starts.

Investment in rail projects and utilities development, as well as ongoing work on major infrastructural projects such as Thames Tideway, HS2 and Hinkley Point are also set to support vertical activity over the forecast period.

Commenting on the forecast, Glenigan’s economic director Allan Wilen, said: “Circumstances have changed significantly since the November 2021 forecast and, whilst the short-term picture appears challenging, we should adopt a sanguine approach for the next few years.

“Markets sent into turmoil by the Russia-Ukraine War are starting to stabilise as new supply chain solutions are developed and established.

“Of course, in the near future construction and building product costs will remain high.

“However this situation will no doubt encourage a burst of imagination and innovation which will see the sector weather the current storm and progress to, if not sunny uplands, then at least towards a trajectory of upward growth.”

Read the full report here.

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