In its spring 2023 UK Market Intelligence report, Turner & Townsend has made no revisions to the tender price inflation forecasts it published three months ago. Real estate inflation is expected to fall to 3.5% in 2023, down from 9.5% in 2022; infrastructure is predicted to fall from 10.0% to 5.5%.
The disinflationary effect over 2023 is being driven by both reduced demand and improved productivity, it says. Construction output is estimated to have contracted by 1.7% in January 2023, compared to December, and this trend is likely to continue through the year, the report says. Meanwhile there has been an 8.6% rise in construction productivity over the last 12 months, and an 11.0% increase since 2020 when Covid-19 arrived, far outperforming wider economic productivity growth, which is described as “lacklustre”.
However, Turner & Townsend warns that continuing labour shortages and industry insolvencies are blocking growth of the construction sector and jeopardise further productivity gains. The total number of people working in construction has fallen by 10.5% since Q1 2019, and market capacity is seeing insolvencies, with 1,112 construction firms going out of business in Q4 2022 alone.
Government plans to loosen the immigration rules – allow many construction trades to qualify for UK work visas under the points based system – is “a respite, not a resolution, to the capacity problems”, Turner & Townsend says. What is really needed is more training ad recruitment within the UK.
Martin Sudweeks, UK managing director of cost management at Turner & Townsend, said: “The construction sector showed its resilience during the pandemic, helping to power our economy back to strength. Then as energy and material costs soared, and the fiscal climate tightened, we’ve shown we can do more with less – growing productivity far faster than the economy at large. Yet the recent budget, and weakening commitment to major infrastructure, does not show us a government as committed to the growth of this vital industry as it has historically been.
“The number of 16- to 24-year-olds enrolling in construction training schemes is now barely a quarter of its 2007 level, and too many still see the sector as low-tech, manual labour, with limited opportunities for progression. This is far from the truth, and it is our joint responsibility – government and industry – to showcase the modern reality of high-tech, high-skilled construction that is powering our economy forward.”
The full report is available at marketintelligence.turnerandtownsend.com
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