Productivity in the UK construction industry is slowing down, bringing the sector back in line with its European counterparts
The decline in productivity in the UK construction industry has been caused by high rates of inflation, which are expected to continue into 2024. This has led to higher interest rates and poor performance across the global economy. Construction output in Europe for 2023 is predicted to decrease by 1.1%.
According to EUROCONSTRUCT, an independent construction market forecasting network, it is now unlikely that the UK construction industry will fully recover to pre-pandemic levels until 2025.
Further decline predicted for the UK construction industry
Barbour ABI, a construction data analyst, found that the UK construction industry surpassed its European counterparts by achieving a 5.6% growth in construction output in 20233, while Europe averaged 3.0%. However, a negative forecast for 2023 aligns the UK with its European neighbours, indicating a slowdown in the industry.
“There was an unexpected bump last year as energy prices stabilised and supply constraints eased. This now appears to have been a transitional period with new pressures in the shape of interest rate hikes and inflation beginning to weigh on the European construction sector,” said Barbour ABI chief economist Tom Hall.
“The effects of post-covid recovery are also fading, leading to a slower global economy,” he added.
One of the reasons for the decline in Europe’s construction industry may be attributed to difficulties in the residential sector. This has been caused by a substantial rise in mortgage rates across several EU countries.
Economic issues have damaged construction across Europe
In some countries, mortgage rates have doubled, while in Finland, Slovakia, Switzerland, and the UK, they have tripled. The combination of elevated interest rates and increasing expenses has made it harder to secure financing, aggravating the situation further.
According to the data, there will be a substantial decline in new residential construction across Europe this year. The UK is projected to be a relatively weak performer, with a decline of 7.1%. In some extreme cases, countries like Sweden may experience a drop of over 30%.
In recent years the civil engineering sector has managed to outperform others with the aid of long-term projects, public financing, and government-led projects. The UK has seen an increase in output of 21% compared to pre-pandemic levels.
However, this growth is expected to decline due to reduced investment. Forecasts for Europe as a whole predict steady growth in 2023 and 2024, while the UK is expected to experience a downturn in growth.
Another issue is inflated prices in the construction sector. Last year, Europe witnessed a double-digit growth increase in construction prices. Although this trend is expected to ease in 2023-24, the UK is predicted to face an 8.1% increase in prices compared to the 6.5% average across Europe.
“The UK appears to be fairing reasonably well, sitting close to the average and measuring well against the likes of France and Germany. The UK has also avoided some of the more extreme swings in construction output forecast in countries like Sweden, Finland, Italy and Hungary. However, challenges still lie ahead, and uncertainty remains,” concluded Hall.
