Construction output is likely to decline by 6.8% in 2023, according to the CPA’s Autumn Forecasts
The last forecast three months ago predicted that construction output would fall by 7.0%, ahead of a further marginal fall of 0.3% in 2024.
This prediction is down from the 0.7% growth forecast anticipated in the summer publication due to the weaker state of the economy.
Although interest rates in the UK have likely peaked, the forecast is lower than previous expectations. They are now expected to remain at this level until at least 2025 due to ongoing inflation.
Construction output unlikely to improve until 2025
This will likely cause the UK economy to flatline in 2024, hindering recovery in major sectors of construction activity, including building housing and repair, maintenance, and improvement (rm&i) until 2025.
Output for infrastructure is also expected to fall, as more road projects will likely be delayed or scrapped than anticipated three months ago. However, activity will likely remain close to current high levels due to ongoing major projects.
Housing will continue to struggle in 2023
The private housing sector may be the worst affected area of the industry. The rapid increase in mortgage rates since the end of 2022 has led to a 30-40% decline in demand for housebuilding.
Interest and mortgage rates are expected to remain high throughout 2024. After a 19.0% decline in completions and output this year, completions are predicted to remain stagnant next year, and growth is unlikely until 2025.
Private housing RM&I is the second-largest construction sector, and activity in this area has continually declined since the ‘race for space’ spike between 2020 and 2022. Output is predicted to fall by 11.0% this year.
Similarly to newly built housing, poor economic conditions in 2024 will affect the recovery speed, as a weakened housing market will reduce the chances of economic improvement. This will keep construction output flat next year, which represents a fall of 2.0% growth from the predictions made in the summer forecasts.
Energy-efficiency retrofit, primarily insulation and solar photovoltaic work, remains strong; however, government programmes such as ECO4, the Great British Insulation Scheme and the Boiler Upgrade Scheme have been criticised.
Infrastructure will decrease by 0.5% in 2023
Infrastructure has remained strong due to ongoing projects, but road projects face delays and cancellations, and the impact of HS2’s cancellation has been limited. New regional projects are unlikely to start before 2029. Overall, infrastructure output is expected to decrease by 0.5% in 2023 and remain nearly unchanged in 2024.
“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,” said CPA head of construction research, Rebecca Larkin.
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,” she concluded.
