UK market intelligence: Planning and project controls needed as UK construction feels the capacity squeeze
Stronger project controls and upfront programme planning are needed to combat a sector-wide capacity crunch, as cooling demand, high insolvencies, risk-averse contractors and loss of market confidence could create further pressures for the industry.
Our latest UK Market Intelligence Report (UKMI) points to causes for concern among the UK construction industry, including slowing new orders, low new work construction output, and persistently high labour and material costs, set against a backdrop of ongoing inflation and supply chain contractions.
UK Managing Director for Cost Management, Martin Sudweeks said:
"Construction is continuing to feel the aftershocks of the pandemic and global inflationary pressures, but the current outlook goes beyond that – and government and industry need to face up to the structural problems our sector is facing."
The UK wants higher growth and a greener, more productive economy. Construction is at the heart of achieving that. But it will remain hard to achieve while we face underinvestment in skills and capacity, and a lack of clarity on a future pipeline of committed projects.
Our tender price inflation forecast for real estate has slightly increased, up to 3.7 percent in 2023 and 2.7 percent in 2024. The predictions for infrastructure tender price inflation in 2023 are unchanged from our spring forecasts at 5.5 percent.
However, with lower private investment than pre-pandemic levels and the recent resequencing of major projects by the government in the mini budget, this could mean a cooling effect in the longer term, and so the 2024 estimation has been revised downwards to 4.5 percent.
These forecasts are driven by a series of major factors. The total number of construction insolvencies rose by 9.7 percent in the year to Q1 2023, with falling construction output combining with increased input costs to tighten contractor margins.
The downward trend in output is expected to continue throughout 2023, with a predicted 6.4 percent fall. This is due, in part, to declining new housing starts in both the private and public sectors. At the same time, the price of materials has increased by 4.7 percent – 42.7 percent above pre-pandemic levels.
Further impact also stems from the scarcity of skilled workers and insufficient labour pool - leading to delays and increased costs. Total construction employment in Q1 2023 contracted by 1.9 percent on the previous quarter, with vacancies still at a historically high rate.
This edition of our UKMI report acknowledges the headwinds facing construction firms and the entire supply chain. Contractors must review their procurement strategies, take greater control of the design stages, adopt more collaborative contracting frameworks, and identify and share potential risks to mitigate the impacts of flatlining client demand and reduced industry capacity.
Martin Sudweeks continues:
For firms in the eye of the storm, putting the right procurement and digital strategies in place will be essential to mitigating the risks.
"Skills gaps must be identified early, and the availability of key personnel locked in. Contractors’ financial statuses must be rigorously evaluated, along with better management of data and real-time reporting to continually assess the progress and performance of projects."
"Our industry faces a very difficult climate, but, as the last few years have shown, we are resilient, and our ability to innovate and creatively rethink our ways of working will help us emerge ever stronger."