Fears of a recession in construction output were confirmed today by a new forecast of a 6.4% drop in 2023, even worse than the 4.7% predicted only three months ago.
Private House building and repair/ maintenance/improvement (RMI) take the biggest share of the blame, with a projected 17% fall in output, alongside expected delays in national infrastructure projects.
“Following the government’s disastrous Mini Budget last Autumn which directly led to interest rates rising to a 14-year high, the resulting higher mortgage rates combined with broader cost of living increases and falling real incomes led to a significant weakening in homebuyer sentiment and a sharp drop in demand heading into this year,” says the report. “Continued pressure on household budgets and the absence of stimulus for homebuying in the Budget, particularly first-time buyers, means that demand from a key segment of the market will remain subdued.”
The forecast follows the CPA’s report last week of the impact of rising materials costs https://www.the-glazine.com/?p=9169 but comes in contrast to far more upbeat forecasts from the aluminium sector (see separate article https://www.the-glazine.com/?p=9225).
CPA head of construction research Rebecca Larkin: “Despite the improvement in the outlook for the UK economy compared to six months ago, the headwinds of falling real incomes and interest rate rises remain. For construction, the most acute effects of this will be felt in the two largest sectors of activity and those that are most exposed to a slowdown in discretionary household spending: private housing and private housing rm&i. The sharp falls that are forecast for housing in 2023 mean that overall, a construction recession will be unavoidable. However, it is important to emphasise that the starting point is a record-high level of activity and the 6.4% contraction expected is smaller than during the construction recessions of 2008/09, 2012 and 2020.
“In previous years, infrastructure activity has helped cushion falls elsewhere, but recent government announcements delaying HS2 work at Euston station and on major roads schemes including the Lower Thames Crossing have weakened the near-term growth prospects for the third-largest sector of construction. Unlike the relatively fast bounce back that is expected in housing in 2024, the prospect of delays leading to even greater cost overruns on large infrastructure projects poses a risk to longer-term activity. This shines a light on the government’s decision to keep capital spending budgets unchanged in cash terms from 2024/25.”
https://dmscdn.vuelio.co.uk/publicitem/5f5e0b95-c3a1-4f06-ba57-b5984ed321d7
