Further evidence of growing pessimism over the future of the industry has come from two reports this week, with the Construction Products Association forecasting a 3.9% drop in output next year and the latest Construction PMI from S&P Global recording the lowest level of optimism for two and a half years.
Professor Noble Francis, CPA economics director, said: “With the UK economy expected to fall into recession, the construction industry will also fall into a recession. It is worth keeping in mind that activity in the industry currently remains at a historically high level, but it will not be immune to the effects of falling real wages and spending at the same time as the cost of construction continues to rise at double-digit rates.
“The largest effects will unsurprisingly be on private housing and private housing RM&I, given that they are reliant on households’ willingness and ability to spend. Activity in both sectors will fall significantly, albeit from a high point. Major clients’ willingness to invest in new commercial developments will also be tested given concern over the UK economy and rising construction costs. Furthermore, infrastructure will be adversely affected by central government and local authority spending constraints as well as increased pressure for austerity despite continual government announcements and reannouncements of more and more infrastructure.”
Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the PMI survey said: “Construction output has staged a modest recovery after the downturn seen through much of this summer, with growth hitting a five-month high in October. Commercial work was the best-performing area of activity as delayed projects moved forward, while increased house building also provided a positive contribution to overall workloads.
“However, the forward-looking survey indicators highlight that growth will be harder to achieve in the coming months as rising borrowing costs, economic uncertainty and cost constraints all had a negative influence on order books in October. The reduction in total new work was the first since May 2020 and this fuelled increased concerns about longerterm tender opportunities.
“Business optimism regarding the year ahead slumped in October and was by far the weakest since the early pandemic months. Construction firms cited concerns about a broad-based decline in client demand due to cutbacks on non-essential spending among clients, although some noted that growth linked to green energy projects, planned infrastructure spending and success in niche markets could help to offset the UK economic headwinds.
Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said: “The construction sector offered a small improvement in output compared to September, maintaining its place in growth territory and rising at the fastest rate for almost six months. However, this positive result offered little in terms of comfort even though purchasing activity also rose and supply chain performance returned to near-normal levels, the sector remained under pressure from all sides.
“New business levels dropped for the first time since May 2020 so this momentum in output levels mostly came from projects in hand or those delayed rather than fresh assignments. Job creation was maintained so builders were able to complete unfinished work, but salary demands along with higher energy costs stripped away margins with inflationary pressures still high.
“The housing sector lost some of its momentum creeping closer to the no-change mark and sitting in a precarious position as the recent interest rate rise will impact on affordability rates for new homes in the months ahead. The UK is entering a recession and higher borrowing costs are intensifying these challenges, which combined to drag down builder optimism about the year ahead to its lowest level since 2020.
