UK construction outlook
Output and new orders
Data from the ONS to August 2024 reflects a resilient sector, with a growth forecast of 1.0% for the three months to August. General sentiment and confidence appear to be rising, as indicated by the positive new order figures, which also represent a 28% increase over the year to June 2024.
The latest S&P Global UK Construction PMI data supports this upward trend, reporting that construction activity expanded at its fastest pace in 26 months (PMI at 55.3), driven by the sharp rise in new orders.
Interestingly, in the latest data, new work outperformed repair and maintenance work; increasing by 1.6% in August, with repair and maintenance activities experiencing a slight decline. At the sector level, five out of nine segments grew in August 2024, with private housing and private commercial new work expanding by 3.4% and 2.2%, respectively.
There is a healthy pipeline of new commercial space, particularly through the refurbishment and fit-out of existing buildings, alongside demand for upgrading commercial and hotel properties to future-proof existing assets.
The impact of the evolving legislative and regulatory landscape cannot be underestimated. The industry has been adapting well to the obligations in the Building Safety Act 2022, although this has important time and cost implications. Early indications suggest a minimum 12-week increase against the statutory programme duration to secure Building Control approval from the Building Safety Regulator (BSR), which could extend to 20 weeks for larger developments. Additionally, practitioners must beware of potential increases in consultant fees, gateway application costs, and inflation-related expenses.
The construction sector's capacity is further constrained by a wave of insolvencies. Rising interest rates, escalating costs, and reduced demand have contributed to a 19% increase in insolvencies in Q2 2024, disrupting supply chains and potentially exacerbating inflationary pressures.
Construction output up
in Q3 2024
New work orders increased
in Q2 2024
Materials and commodities
The DBT material price index shows a 1.1% decrease in August 2024 compared to August 2023, continuing the significant decline since the inflationary peak of Q1 2022. Key contributors to this easing include aggregates (-10.8%), fabricated steel (-7.3%), and reinforcement bars (-4.3%). However, basic mechanical, electrical, and plumbing (MEP) components continue to see price increases, particularly in pipes and fittings, which have risen by 17.4%. This highlights the MEP sector as a notable concern regarding inflation in the medium term.
Material price index for ‘all work’ down
Steelwork prices fell by
Procurement
Across both public and private sectors, there is a growing backlog of projects ready to start. The recent uptick in tender activity and new orders indicates movement in this dormant pipeline, spurred by a perception of relative stability in the UK economic landscape and government commitments to growth.
Our observations suggest that main contractors and the supply chain are actively pursuing tender opportunities with renewed vigour. However, employers and consultants should remain cautious regarding the fragility within the procurement market, as bidders continue to exercise caution concerning risk. Recent challenges in reaching financial closure on large contracts highlight the ongoing volatility, with contractors continuing to expect two-stage tender routes or target cost contracts. The MEP market remains particularly challenging, with larger contractors opting for self-delivery where feasible.