Total output across the UK construction industry is set to fall this year, according to the latest forecast from the Building Cost Information Service (BCIS).
The most recent data from BCIS indicates a fall in construction output as recessionary pressures hit the industry. While the cost-of-living crisis continues to impact the repair and maintenance sector, the cost of borrowing has affected the new work sector, with high financing costs becoming a major barrier to investment. BCIS predicts new work output to fall by 5% in 2024.
Dr David Crosthwaite, chief economist at BCIS, said: “Persistent low growth has become characteristic of construction, as it has the wider economy, and it is highly likely that the industry is currently in a recession.
“The question everyone is asking is: when will the Bank of England lower borrowing rates, and crucially, by how much?
“The industry is crying out for some clarity and commitment to a planned pipeline of work – both to boost investor confidence and to ensure the necessary resources are in place on the supply side. We really need the government to prioritise infrastructure investment as what it is – a key lever of economic growth.”
The BCIS Materials Cost Index shows the inflationary impact on construction resources has diminished, leaving labour as the biggest cost driver on projects.
The latest figures from ONS’s Average Weekly Earnings dataset show construction wages increased by 4.0% in the year to November 2023 and BCIS is forecasting labour costs to soften mid-2024 and return to trend thereafter, rising by 18.5% over the next five years.
Amidst a stagnant economy, high borrowing costs and rising tensions in the Middle East, the industry is still facing a range of challenges in the year ahead.
Dr Crosthwaite added: “The last thing the industry needs now is more uncertainty, but it being an election year of course adds this into the mix, not just at home but across 76 countries worldwide.
“What’s happening in the Red Sea could well have inflationary impacts on material costs if the cost of shipping increases and supply shortages materialise.
“When demand picks up again, we’ll have a new set of problems to deal with, like how to plug the labour supply gaps and skills shortages that are likely to arise with increased activity in the sector.”
For more information about BCIS, please visit: www.bcis.co.uk.