The Forecasted Rise in Building and Tender Costs
The construction sector in the UK is set for a bumpy ride, with building costs projected to escalate by a significant 15% over the next five years. Simultaneously, tender prices are expected to see an even steeper increase of 17% throughout the same period. This information comes from a recent building forecast by the Building Cost Information Service (BCIS), which paints a picture of a sector under economic pressure.
The Struggle with Falling Demand and Stagnating Output
Despite emerging from a period marked by high inflation, the construction industry currently faces the twin challenges of diminishing demand and stagnant output. After a 2.1% decline in 2023, new construction output is predicted to shrink further by 3.2% in 2024, before finally rebounding. Over the forecast period from 2024 to 2029, total new work output is expected to grow by 21%.
Economic Pressures Squeezing Construction
Dr. David Crosthwaite, BCIS’s chief economist, highlights the recessionary pressures trickling down from the broader economy. High borrowing costs are particularly stifling new projects in the private sector, where they form significant barriers to investment. The downturn in private industrial, commercial, and housing sectors is expected to be most pronounced.
Government Uncertainty and Its Impact
The construction sector’s future is further clouded by political uncertainties, especially with it being an election year in the UK. Government plans remain ambiguous, despite the recent Spring Budget and the publication of the National Infrastructure and Construction Pipeline. Such uncertainty tends to stall government spending plans, impacting the construction industry’s growth prospects.
Changing Dynamics in Tender Prices and Costs
While annual growth in tender prices has been easing, falling from 8.6% in the first quarter of 2023 to an expected 2.9% in the first quarter of 2024, these are set to decline further to 1.6% by the end of 2024. On the input side, the BCIS Labour Cost Index anticipates an 18% increase from early 2024 to early 2029, although the pace of this growth is predicted to slow.
Materials and Global Influence
Dr. Crosthwaite further notes that while material prices are generally stable, global events such as those in the Red Sea and the Middle East could indirectly affect costs through increased shipping risks and expenses, which are likely to be factored into future pricing.
Contractor Cautiousness in a Crisis-Ridden Landscape
The industry, having experienced various crises recently, remains fraught with uncertainty. With the UK economy and construction sector grappling with persistent low growth, the future remains tentatively poised on monetary policy decisions by the Bank of England, which could influence recovery paths.
Conclusion
As we look towards a turbulent economic landscape, the construction industry in the UK braces for impact, equipped with insights but hedged by uncertainty. Strategic decision-making, guided by real-time economic indicators and forecasts like those from BCIS, will be crucial for navigating the challenging times ahead.
FAQs About UK Construction Economic Forecast
- What are the expected increases in building and tender costs over the next five years?
Building costs are expected to rise by 15%, while tender prices could increase by 17%. - Why is there a predicted decline in new construction output in 2024?
This decline is largely due to high borrowing costs and economic uncertainty, which suppress demand and investment, particularly in the private sector. - How are political factors influencing the construction industry?
The uncertainty surrounding government spending plans, especially during an election year, creates a hesitant investment climate. - What global events could impact material costs in the UK?
Issues in the Red Sea and the Middle East, particularly concerning shipping, could indirectly lead to increased material costs. - Why is contractor cautiousness significant in the current economic climate?
Contractors are selective about projects due to economic instability, which impacts their willingness to commit to large and complex projects.
