UK market intelligence: Case-by-case measures needed in light of looming recession
With recessionary clouds continuing to gather over the UK economy, and ongoing inflationary pressure, the UK construction sector needs to target investment in innovation and productivity to help build short-term to long-term resilience.
While the economic indicators are still giving mixed messages, our latest UK market intelligence report (UKMI) for winter Q4 2022, recognises that both the economy and UK construction are entering a sustained period of weakness. Whether the technical definition of a recession is met or not, the softening economy and decline in business sentiment will both pose significant challenges to the construction industry.
With this in mind, clients must prepare for ongoing inflationary pressure throughout 2023 and prioritise investment in innovation and productivity, including making data-driven decisions and better use of modern methods of construction, to build a better resilience for the future.
Martin Sudweeks, UK Managing Director, Cost Management, said:
We’re facing a complex economic situation and we should be careful of assuming the rules of past recessions will be the case this time around – or that they will impact all sectors and projects similarly. Clients will need to consider what the economic situation means to their projects based on factors such as size, value and geography.
Our latest report forecasts that real estate tender price inflation (TPI) will settle to 3.5 percent in 2023 before falling to 2.5 percent through 2024.
For infrastructure, TPI is anticipated to be 5.5 percent over 2023 and soften slightly to 5.0 percent through 2024. This is partly being fuelled by the government’s recommitment to infrastructure spending including projects such as Sizewell C and HS2.
The report also points to growing uncertainty in contractors’ pipelines. The Construction Products Association (CPA) Winter construction output forecast suggests activity may fall by as much as 4.7 percent in 2023.
However, resilient demand and pockets of growth may maintain high tender pricing from contractors in specific sectors such as industrial development and infrastructure through 2023.
Despite the fluctuating economic backdrop, clients will need to consider careful planning and take pragmatic action to create an effective strategy for resilience over the immediate, medium and long-term.
Martin Sudweeks continues:
"While the scale and duration of the potential recession are still unclear, we know the construction sector needs to invest in building its long-term resilience to aid recovery. Innovation and productivity can fall by the wayside when times are difficult, so we need to be disciplined in prioritising that investment in the coming year – from putting data at the centre of all of our projects to make informed decisions, to making better use of modern methods of construction."
Though we face continued pricing and capacity challenges, with a long-term, pragmatic view, focusing on efficiencies, understanding our supply chains and potential risks, we can build our resilience and a better road to recovery.