Lifting the fog

Well, the haze of uncertainty remains as we begin 2024. The familiar challenges of recent years — global headwinds and wider economic pressures — continue to weigh on the construction industry, although some new factors contribute to the difficult landscape.

Once again, survey respondents ranked interest rates and inflation as the biggest threat to the construction industry moving forward, and over 80% of participants said that inflation impacts the viability of schemes.

Despite Chancellor Jeremy Hunt heralding the Autumn Statement as “the biggest ever boost for business investment in modern times”, only 12% of respondents say it increased their confidence in the government’s ability to grow the economy. Concerning for the Conservatives, given it is an election year.

The Labour Party increased its lead in our survey, with three-quarters of respondents saying it is most likely to win the next general election. Those who took our survey identified addressing labour shortages and the skills gap and net-zero construction/retrofitting as the top two priorities to improve the industry.

About half of respondents (54%) expect raw material prices to rise due to supply risks from conflicts in Ukraine and Gaza. Some pressures are also emerging as a result of Houthi activities in the Red Sea. Increased shipping costs and delays due to the rerouting of maritime traffic around the Cape of Good Hope led to some Asian steelmakers withdrawing from the European market, consolidating the higher pricing point from European mills in January.

There are also concerns that the unrest could lead to a spike in energy prices, as since Russia’s invasion of Ukraine, the EU has increased its imports of oil and liquified natural gas from the Middle East via the Suez Canal. There haven’t been any significant uplifts so far, but it’s one to watch for and another layer of fog to contend with.

Geopolitics will also take centre stage this year as elections occur around the globe, with an estimated two billion voters in 50 countries participating in national elections. The ramping up of rhetoric is seen and more political uncertainty adds to the challenging backdrop.

Unfortunately, construction insolvencies remain at an elevated level and some contractors posted reduced pre-tax margins or losses in their most recent accounts. Over half of contractor respondents said their project(s) were affected by insolvency in 4Q 2023.

The supply chain stays risk-averse, with nearly nine in ten contractors reporting they or their supply chain declined a tender in 4Q 2023, up slightly from our report survey looking at 3Q 2023 when 82% said the same. The reasoning was reasonably equal between a lack of capacity, the proposed tendering/contract conditions/risk profile, or a combination of these.

With reduced construction output expected in 2024, the evident caution in the supply chain is important to consider. Some parts still have good levels of order books filled and such companies can afford to be selective in which projects they pursue. Feedback continues that getting sufficient tenderers for complex or challenging projects can be tricky.

Linked to this is some optimism, with only 18% of respondents predicting fewer tender opportunities in 2024 than in 2023. Some schemes push ahead, including some government departments continuing with programmes ahead of the election.

Overall, the construction industry continues to face a complex landscape shaped by external factors such as the broader economy and global pressures. To navigate these challenges and foster resilience, the industry must collaborate, embrace digital technologies and artificial intelligence and adopt modern methods of construction when suitable.

One such opportunity is the use of AI tools such as Chat GPT. In line with our previous surveys, around a quarter of respondents say they have used Chat GPT or another AI tool in their workplace. We expect this trend to grow as advancements in artificial intelligence and digital tools accelerate, offering more options to optimise project efficiency.

So to finish, another year requiring resilience from the UK construction industry, let’s dig deep to ensure we finish the year in a stronger place than how we have started.