Navigating through 2024, the UK construction industry grapples with persistent uncertainty. Economic pressures, the effects of global tensions and the upcoming general election intertwine to create a state of flux. While there are some glimpses of hope for a brightening outlook, it remains a challenging environment.

In our 2Q 2024 market survey, respondents identified interest rates and inflation as the biggest threat to the construction industry, with 21% ranking it as the top threat. Encouragingly, though, this percentage is reduced from our last survey when 35% of respondents ranked it first. There's also anecdotal evidence suggesting a resurgence in projects previously on hold, buoyed by expectations of lower interest rates later in the year.

Other industry data corroborates this shift. Simon Rubinsohn, Chief Economist at RICS, notes in his commentary below the improved expectations metrics and a rise in client enquiries across infrastructure, residential and commercial sectors, as evidenced by the Q1 RICS UK Construction Monitor.

March 2024 witnessed a rebound in total industry activity, marking the end of a six-month decline according to the S&P Global UK Construction Purchasing Managers’ Index (PMI). Approximately half of the surveyed panel anticipates a rise in output levels over the next year, signalling a cautiously optimistic sentiment.

Yet, amidst these positive signs, apprehension lingers. Investor confidence and concerns over insolvencies and supply chain capacity rank as the second-highest threats according to our survey respondents, indicating prevailing caution in the market.

Challenges persist, particularly in securing adequate tenderers and contending with supply chain limitations. Almost nine in ten contractors said they or their supply chain declined a tender in the quarter due to a lack of capacity, the project’s risk profile or a combination of these factors, continuing the high levels seen from mid-2023 and up 11 percentage points on the 78% who reported the same a year ago (for 1Q 2023).

Only 13% of respondents think the National Infrastructure and Construction Pipeline recently published by the Treasury and the Infrastructure and Projects Authority will be delivered. 36% said the primary reason for the non-delivery of the projected £700 billion investment over the next decade is high construction inflation/elevated construction costs squeezing budgets, whilst a quarter said non-delivery would primarily be due to planning delays/legal challenges.

Recent lower construction activity has eased some labour pressures, with the lowest amount of contractor respondents reporting issues with labour supply in 1Q 2024 (15%) since we started asking the question, which was looking at 1Q 2021 when 17.5% reported problems with availability. However, over half of contractors reported labour rate increases in 1Q 2024.

Despite a temporary easing of labour pressures, long-term shortages loom large. Data from the Office for National Statistics (ONS) shows that the UK construction industry is set to lose over 500,000 workers over a 10–15-year period from 2019. Compounding this challenge, the CITB estimates that nearly 225,000 extra construction workers will be needed by 2027 to meet demand. Two-thirds of our survey respondents do not think it will be possible to recruit and retain enough people to fill the gap.

As Simon highlights below, it is a concern whether there will be sufficient capacity to support the pick up in development as the economic landscape brightens.

So, what can we do to improve our fortunes and get ready for delivery? We need to seize the opportunities available to us, for example, harnessing the benefits of digital and artificial intelligence (AI) to use available resources more efficiently.

Later in the report, you can read more about our Upskill training programme, which empowers our people to navigate the digital and AI age and deliver data-centric projects. This initiative was recently shortlisted for the Construction News’ Training Excellence Award, and we offer external training in various formats for every career stage. Get in touch with the team to find out how your organisation could benefit.

It goes without saying that the industry needs to focus on attracting and retaining talent by showcasing the rewarding careers on offer and changing outdated perceptions of the industry.

When preparing projects, it's crucial to acknowledge the caution and risk aversion in the market. Embracing early engagement with the supply chain enables teams to capitalise on opportunities like modern methods of construction while mitigating risks. Ensuring design integrity and recognising local market dynamics are equally important.

In conclusion, despite the lingering uncertainty and the likelihood of further surprises, there are signs of a gradual improvement in the overall landscape. It's imperative that we proactively gear up for the anticipated upturn and the delivery of a substantial investment pipeline, which is crucial for transitioning towards a net-zero future and building resilience in our public services, energy and infrastructure.