UK market intelligence: weathering the inflationary storm

Kristoffer Hudson

Associate Director, Leeds

UK

The past year has seen the construction industry shift from reduced activity levels to real buoyancy and a higher degree of demand. The easing of lockdown restrictions and resurgent business confidence have accelerated client demand since the start of 2021, with total construction new orders spiking by £2billion between the first and second quarters of 2021. Such rapid growth has come with significant inflationary side effects.

Our UK market intelligence for autumn 2021 examines the outlook for the construction industry and looks at what is behind the extraordinary inflationary pressure it faces. The report also explores how adopting a programmatic approach to net zero efforts may enable the country to deliver on the demand to build back better and greener.

Economic outlook

The UK economy has returned to strong growth, with gross domestic product (GDP) increasing by 4.8 percent in Q2 2021 as COVID-19 restrictions were eased. By July 2021, GDP was just 2.1 percent below where it was in February 2020, immediately before the pandemic hit.

However, supply chain issues, coupled with the ‘Pingdemic’ of workers needing to self-isolate at home, has pegged back the rate of growth. Meanwhile quarterly data suggests that activity levels in the UK construction industry are close to regaining the ground lost during the pandemic.

Despite this perceived near clean bill of health, monthly data shows that construction output has weakened in each of the last four months. This culminated with a drop of 1.6 percent in July 2021 and output resting 1.8 percent below pre-pandemic levels. Continued material price increases, reduced labour availability following Brexit and growing capacity constraints are combining to restrict activity.

All eyes will be on the construction industry and its ability to weather the inflationary storm that it finds itself in. Continued price pressures and further disruption threaten to derail current performance and impact future growth prospects.

Using programme power to put inflation in its place

Both public and private sector clients are juggling multiple, competing goals and priorities. From accommodating hybrid working patterns, to embedding social value into their operations and taking concrete steps towards net zero, success is no longer judged simply by the old mantra of ‘better faster, cheaper’.

There is a danger that clients who ‘firefight’ inflation in isolation will lose their focus on – and their ability to achieve – these wider goals. The best way to address so many overlapping challenges at once is to adopt a programmatic approach that divides and conquers complex issues, diversifying the supply chain and increasing productivity.

As November’s COP26 summit in Glasgow focuses global attention on net zero as never before, the construction industry and its clients cannot allow short-term inflationary issues to negatively impact the once-in-a-century opportunities offered by the post-COVID recovery. In the immediate term, we must all adapt to rising tender prices. And while inflationary pressures are likely to ease next year, the dividends from 'Build Back Better' should last for decades.

Download the report to see the full economic data and insight, and to read about tender conditions in the UK.

For further information contact:

Kristoffer Hudson
Associate Director, Leeds

t: +44 7939048589
e: