UK Construction Market Report 1Q 2024
Other factors
Key statistics:
Economic outlook
growth in gross domestic product (GDP) in the month to November.
The UK economy sits on the brink of a recession.
General election
of survey respondents think Labour is most likely to win the next general election.
Autumn Statement
of respondents say the Autumn Statement increased their confidence in the government's ability to grow the economy.
Wider economy
According to ONS data, monthly GDP is estimated to have grown by 0.3% in the month to November, following an unrevised fall of 0.3% in October 2023.
The meagre uplift reflects a year of broadly flatlining GDP. The UK economy sits on the brink of a recession, which would be confirmed if figures later this month (February) show a contraction between October and December.
Economists are split on the UK’s prospects in 2024, with some seeing the economy regaining momentum due to rising wages, falling inflation and decreasing mortgage costs. Others foresee declining consumer confidence amid the continued high interest rate environment.
Monthly public sector borrowing
Public sector net borrowing, excluding public sector banks, in December 2023 was £7.8 billion — around half or £8.4 billion less than that borrowed in December 2022 and the lowest December borrowing since 2019.
Data from the ONS shows that interest on government debt was £4 billion in December, a considerable reduction of £14.1 billion from December 2022.
However, government debt in December stood at 97.7% of GDP — up 1.9% year-on-year.
At £119.1 billion, borrowing in the financial year to December 2023 was £11.1 billion more than in the equivalent period the year before.
The Office for Budget Responsibility (OBR) predicts that debt should fall in five years, subject to further details on the government’s spending plans after 2025, forecasting a slower pace of borrowing over the next few years. It predicts that borrowing will be about £27 billion lower in 2027/28 due to inflation hampering government department spending.
Chancellor Jeremy Hunt outlined in November’s Autumn Statement that the government is on track to meet its debt target. The OBR forecasts that debt as a proportion of GDP will fall in 2027–28 and 2028–29.
Pressures on construction activity and output
According to ONS figures, monthly construction output is estimated to have decreased by 0.2% in volume terms in November 2023; this follows an upwardly revised decrease of 0.4% in October 2023.
This follows construction output seeing a decrease of 0.6% in the three months to November; this came solely from a decrease in new work (3.6% fall), as repair and maintenance increased by 3.8%.
Three of the nine sectors saw a fall in November 2023, with the main contributors to the monthly decrease seen in private new housing and infrastructure new work, which decreased 3.9% and 2.0%, respectively.
Chancellor's statement
Despite being described by Chancellor Jeremy Hunt as "the biggest ever boost for business investment in modern times", only 12% of respondents say the Autumn Statement increased their confidence in the government's ability to grow the economy.
While the construction industry would have been keen to see more investment and initiatives, there were commitments to progress the National Infrastructure Commission's recommendations on planning.
The Treasury and the Infrastructure and Projects Authority (IPA) recently published its National Infrastructure and Construction Pipeline, whereby up to 600,000 workers will be required to implement £164 billion of infrastructure investment. It is anticipated that 60% will be construction workers. According to the report, £64 billion worth of planned investment includes delivery through modern methods of construction.
The Autumn Statement also included £4.5 billion of funding for "strategic manufacturing sectors" over a five-year period from 2025 to attract investment. The life sciences sector will receive £520 million, where there is an acute need to boost late-stage funding and infrastructure capacity if the UK is to realise its global superpower ambitions.
The preliminary S&P Global/CIPS UK Composite Purchasing Managers' Index (PMI), which spans services and manufacturing firms, rose to 52.5 in January, the highest reading in seven months and up from December's final reading of 52.1.
However, Red Sea shipping delays are feeding through to higher manufacturing prices in the UK, which could worry policymakers at the Bank of England about a wider inflationary jolt upwards.
Fiscal headroom to manoeuvre
Both the Conservatives and Labour have promised to get the national debt as a proportion of GDP falling within five years.
Under the government's current plans, partly outlined in the Autumn Statement, the national debt will rise substantially between now and 2026/27.
Yet because the national debt is falling ever so slightly between 2027/28 and 2028/29, this results in fiscal rules being met, leaving 'fiscal headroom' allowing an increase in national debt so long as it appears to decline within five years.
The fiscal headroom is derived from the difference between the last two figures of the five-year timeframe: debt being 94.9% of GDP in 2027/28 and 94.4% in 2028/29, amounting to approximately £13 billion in potential spending for the Treasury according to the OBR's latest forecast.
As previously mentioned, the latest ONS figures show that public finances are in better health than expected in November. Debt interest costs, in particular, are lower than anticipated.
This could be the cue for economists saying the chancellor will have more room for tax cuts in March's Spring Budget. Headroom could indeed move upwards throughout 2024 with stronger public finances. However, plans for further tax cuts will need to be carefully scrutinised amid such fragility in the economy, with the International Monetary Fund warning against them.
The construction industry will be hoping for more from the Spring Budget — with the Construction Leadership Council having submitted a letter to the Treasury outlining the need to unlock public and private capital to finance housing and infrastructure projects. Keeping up the momentum in regulatory programmes and retrofit initiatives is also seen as vital.
General election
Almost three-quarters of respondents expect the Labour Party to win the next general election — up 10 percentage points from last quarter’s survey.
Meanwhile, the chancellor’s Autumn Statement failed to increase the share of respondents expecting a Conservative victory — down by 5% in the last quarter.
The Conservatives are once again somewhat perceived to be the most supportive of construction and real estate, but down from last quarter’s figure of 41% to 33%. Indeed, there is an almost even split this quarter between the Conservatives, Labour and none.
At 26%, addressing labour shortages and skills gaps was ranked first as where a new government should focus efforts on improving the industry.
Meanwhile, the lowest score of 4% went to the implementation of AI. It will be interesting to see if this figure improves throughout the year, with contractors and consultants increasingly experimenting with AI — partly as a means of countering the labour and skills shortages afflicting the industry.
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