Recession is expected to overshadow the construction sector until 2025, as a weakening economic context has seen the outlook for recovery downgraded.
Production is now forecast to fall 6.8% this year, according to the Construction Products Association (CPA), a slight improvement from the 7% forecast in the summer. However, construction is now expected to contract by 0.3% next year, despite earlier predictions of growth.
Interest rates are likely to have peaked lower than previously expected, but are now expected to remain at that level for longer due to stubborn inflation, according to the CPA’s autumn forecast.
“As a result, the UK economy is expected to remain flat throughout 2024, holding back the recovery in key sectors of construction activity such as new-build housing and repair, maintenance and improvement (RM&I) until 2025,” the association said.
Private housing, the largest construction sector, is expected to be the hardest hit, with output falling 19% this year, which will remain flat next year as mortgage rates hold constantly high and show no possibility of growth until 2025.
Private housing RM&I, the next largest area, has continued to experience an overall downward trend, with output forecast to fall 11 percent this year and remain flat in 2024.
In the third largest sector, infrastructure, activity remains strong due to ongoing work on major projects such as HS2 between Old Oak Common and Birmingham, the Thames Tideway Tunnel and Hinkley Point C.
However, there are signs that more road projects are being delayed or canceled than expected in summer forecasts, while new projects continue to be delayed due to escalating costs and feasibility problems.
The CPA’s head of construction research, Rebecca Larkin, said: “With just a couple of months left in a tough year for construction and looking ahead to 2024, the evidence suggests it will still be some time before the clouds begin to lift.”
Although more interest rate hikes were now on the cards, Larkin said, the prospect of higher oil prices keeping inflation high suggests rates are likely to remain at their highest for longer and throughout next year, maintaining moderate demand for home purchases and improvements.
“It will also create a major shift in financing costs compared to the record low rates of the past decade for new commercial and industrial projects that will likely limit the appetite for investment and development,” he said.
“With the infrastructure planned for two years of planning activity, it does illuminate the importance of large projects as a growth engine for the sector and construction in general,” he added.
“In particular, the government’s cut-and-shift infrastructure spending decisions this year have removed road, rail and offshore wind projects from the near-term pipeline and further weakened industry confidence that government announcements will can translate into a tangible deliverable.”
