.png)
Latest quarterly forecasts from the Construction Products Association (CPA) put construction output growth at minus 0.3% for 2024 – it is a small contraction, but previously the CPA had been predicting a rebound in 2024.
On the positive side, the CPA has very slightly adjusted its 2023 forecast: three months ago it predicted a 7.0% fall for 2023’s construction output but now reckons a 6.8% fall.
The revisions are based on the determination that UK interest rates are now likely to have reached a peak that is lower than previous expectations, but it is now anticipated that they will remain at this level for longer, until 2025, due to stubborn inflation.
Consequently, the UK economy is expected to flatline throughout 2024, holding back the recovery in major sectors of construction activity such as new build housing and repair, maintenance and improvement (RMI) 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 on the ground.
The headlines of the CPA’s autumn forecast are:
- Construction output falls by 6.8% in 2023 and 0.3% in 2024
- Private housing output falls by 19.0% in 2023 and remains flat in 2024
- Private housing repair, maintenance and improvement to fall by 11.0% in 2023 before remaining flat in 2024
- Infrastructure output to fall by 0.5% in 2023 and fall by 0.1% in 2024
- Industrial output to rise by 3.5% in 2023 before falling by 8.7% in 2024.
Private housing is both the largest construction sector and the sector forecast to be the worst affected by prevailing economic conditions this year. The increase in mortgage rates since the brief Liz Truss premiership in 2022 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 affect demand throughout next year, the CPA says. As a result, after a 19.0% fall in completions and output this year, completions are forecast to remain flat in 2024 with no growth until 2025. Whilst the balance of risks to private housing clearly remains on the downside, a positive policy stimulus in the chancellor’s autumn statement would help demand to start to recover next year, the CPA said.
Private housing RMI 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 triggered by the lockdowns and working from home. Private housing RMI 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 flat in 2024, which is a downgrade from the 2.0% growth expected in the CPA’s summer forecasts. Energy-efficiency retrofit – primarily insulation and solar photovoltaic work – remains strong despite questions over government programmes such as ECO4, the Great British Insulation Scheme and the Boiler Upgrade Scheme.
In the third-largest sector, infrastructure activity remains strong down on the ground due to work continuing on major projects such as HS2, the Thames Tideway Tunnel and Hinkley Point C. However, more roads projects are being delayed or cancelled than anticipated in the summer forecasts and new projects continue to be delayed as rising costs jeopardies viability. The impact of the government’s decision to cancel HS2 north of Birmingham is limited as the majority of this work was planned to occur beyond the forecast period. Similarly, the £36b of replacement projects promised 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 flat (minus 0.1%) in 2024.
CPA head of construction research Rebecca Larkin 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 RMI 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.”
Got a story? Email news@theconstructionindex.co.uk
