The Construction Products Association has issued its 2024 Winter Forecast, anticipating that construction output will continue to fall this year before recovering in 2025. TDUK reports.
Construction activity continues to endure a challenging environment, with the sharp falls in private housing newbuild and repair, maintenance and improvement (RM&I) seen during 2023 now expected to extend into 2024, with recovery only anticipated in 2025. Overall construction output is also forecast to fall overall this year, continuing last year’s decline, before recovery next year.
Despite this, output levels remain strong in the infrastructure and industrial sectors, which reached their highest levels on record in 2021 and 2022 respectively but, even here, activity is expected to continue to fall away from peak levels this year.
Total construction output is forecast to fall by 2.1% in 2024, a revision down from the -0.3% in the Autumn forecast. Output is then forecast to rise by 2.0% in 2025, a slight upward revision from the 1.8% previously forecast three months ago.
Within the overall forecast figures for next year there are mixed fortunes across the different sectors, but the key driver of changes to the 2024 forecast for total construction output is a downward revision to both private housing newbuild and RM&I – from flat to -4.0% in both private housing and private housing RM&I, as the effects of falls in property transactions in 2023 H2 and 2024 H1 have a knock-on effect onto housing activity.
There are both positive and negative risks to the forecast for the UK economy and construction, given the current number of political and economic uncertainties. As a result, alongside the forecast it is important to take into account the CPA’s Key Risks as well as the Upper Scenario and Lower Scenario.
Overall, since the CPA’s last forecasts three months ago, firms across the supply chain have reported activity slowed, unsurprisingly, towards the end of 2023 as the industry entered the Winter shutdown. Firms also reported that it was a slow start in the first half of January due to extended holidays for some households and, especially, due to poor weather with persistent rain and flooding in some areas of the UK.
Within public housing, housing associations have reported affordable housing demand remained strong, but that their priorities continue to be dealing with basic living conditions, building safety, and the decarbonisation of their existing stock, as highlighted in previous forecasts, rather than on newbuilds.
In private housing, housebuilders reported that demand since Autumn 2023 has fallen by up to one-third overall and, as a result, their focus remains on completing existing developments and cutting costs rather than on new starts.
However, they are now more optimistic than they were 3-6 months ago that demand may recover earlier if interest rates fall significantly from Spring 2024. In addition, they are also hopeful that the Chancellor’s Budget in March will see policies aimed at enabling demand in the housing market, such as, potentially, extended (25-year) fixed-rate mortgages or 99% LTV mortgages – although this would still take time to have a significant impact on mortgage approvals.
Commercial and infrastructure output
Infrastructure activity remains strong on both major projects and large frameworks according to firms down on the ground, despite all the negative noises and mixed messages from government. Firms working on roads projects are, however, increasingly concerned about projects being pushed back from RIS2 to RIS3 and there is currently little evidence of the potholes funding helping to boost local authority roads activity.
Public non-housing has made slow progress on the School Rebuilding Programme and the New Hospital Programme. Slower client decision-making is currently delaying new projects in both subsectors, according to the supply chain, although activity is likely to speed up on both programmes as schools and hospitals with issues around Reinforced Autoclaved Aerated Concrete (RAAC) are prioritised for renewal works.
Industrial demand for larger projects in both warehouses and factories appears to have fallen away sharply, albeit from a large spike in activity a year ago, but there remains an array of smaller warehouse projects on the ground and in the pipeline.
Commercial activity remains strong for fit-out and refurbishment, while conversions to residential in urban centres or industrial and logistics activity on the edge of cities also remains high. In addition, activity on data centres and biotech facilities is buoyant. New commercial towers projects and large commercial developments, such as film studios outside of the capital, appear to have paused due to financial viability concerns given the increase in construction and financing costs.
Firms in public housing RM&I report that activity continues to rise due to housing associations and local authorities focusing on basic living conditions, building safety issues and decarbonisation, which has taken finance away from their previous newbuild plans.
Private housing RM&I activity fell away in particular in the second half of 2023 and remains subdued, with a very slow start to work in the new year. This may be partly due to the poor weather and so firms are anticipating that there may be a significant pickup in activity in February and March if weather and household finance allows. Insulation and other energy-efficiency work continues to be buoyant and there is little sign of this falling away near-term.
Nick Boulton, Head of Technical & Trade Policy at TDUK, said: “While 2023 may look poor against the strong construction market seen in 2022, timber imports appear to remain in positive territory through to year end, suggesting business are optimistic for Q1 2024.”
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