Is the glass half empty or half full?

We asked in our Autumn Report whether the UK construction industry was in for a trick or a treat. Now that 2023 has arrived, the picture isn’t much clearer, with many of the challenges faced in 2022 continuing at the beginning of 2023 …

Whilst 53% of respondents to our survey said that materials prices are starting to settle — up from 32% in our last survey — increases have been seen in the new year for energy-intensive products. Further rises are expected due to inflationary pressures and the scaling back of energy support from the government.

Challenges remain for the wider economy. The Bank of England and the Office for Budget Responsibility (OBR) both forecast that the economy will shrink in the first half of 2023 and continuing industrial action will add further pressure. The global economy is also expected to slow in 2023.

Data from the Office for National Statistics (ONS) shows that Consumer Price Inflation (CPI) rose by 10.5% in the 12 months to December 2022, reducing from 10.7% in the year to November and from October’s 41-year high of 11.1%. The government is hopeful that inflation will continue to decrease over the course of the year, thanks to reducing energy prices. However, the cost of living crisis is still impacting construction costs, with nearly 90% of contractor respondents reporting increases in labour rates in the fourth quarter of 2022, up from 76% in our Autumn Report.

Wider industry data is pointing to a slowing in activity. However, in our latest survey results, across contractor and non-contractor respondents, more saw opportunities increase in 4Q 2022 and forecast them to rise in 1Q 2023 than those who thought there had been or would be a reduction in prospects.

With viability challenges, there is likely to be a shift in sectors having strong activity. Despite rumours that the government was re-evaluating and planning to cut major projects in the Autumn Statement to tackle the deficit, pledges included more than £600 billion of capital spending over the next five years for schemes including HS2, Northern Powerhouse Rail, East West Rail and the New Hospitals Programme. With this, only 3% of survey respondents said that the Statement had been worse for construction than they had expected. However, significant pressures remain for departmental capital spending, which will be “maintained in cash terms until 2027/28”, meaning the squeezing of budgets.

There is also a drive for retrofitting buildings to improve energy performance. Clients are keen to reduce energy use to minimise running costs and ensure that stock is competitive, with premiums evidenced in markets like London and Paris, for buildings with sustainability ratings including BREEAM and LEED, compared to those without.

Following events of recent times, our surveys have shown that collaboration in the industry remains strong, allowing teams to better foresee and overcome challenges. Generally, there appear to be better discussions around risk apportionment and early specialist advice being obtained. Encouragingly, there was also mention of increased innovation, particularly on-site, driving improved quality and outcomes.

More of this will be needed in 2023 and beyond. Promoting the digitalisation of the industry will help to overcome challenges, improving productivity and outputs — here’s hoping that the wider economic challenges will not derail further investment, or the progress made to date. It goes without saying that projects need to be established with good foundations to enable success and that close monitoring of market conditions is vital.

With such a mixed picture and global uncertainty, it is anyone’s guess what will crop up this year — but the construction industry continues to show resilience to face whatever comes.