UK Construction Market Report 2Q 2024
Other factors
Key statistics:
Economic outlook
growth in gross domestic product (GDP) in the month to February 2024.
General election
of survey respondents think Labour will likely win the next general election.
National Construction and Infrastructure Pipeline
of respondents think the projected £700 billion of investment will be delivered.
Wider economy
According to ONS estimates, monthly GDP grew by 0.1% in the month to February, following a revised increase of 0.3% in January 2024.
This indicates that the UK’s recent technical recession may be a temporary blip, albeit amid continued weak growth.
The production industry partly fuelled the first uptick in growth since last summer. A strong labour market has also kept wage growth high, resulting in households seeing a boost to their real incomes.
Pressures on construction activity and output
According to ONS figures, monthly construction output is estimated to have decreased by 1.9% in volume terms in February 2024, following an increase of 1.1% in January 2024. Anecdotal feedback to the survey informing the numbers suggested that heavy rainfall led to delays in planned work and decreased output.
Eight of the nine sectors saw a fall in February 2024, with the main contributors to the monthly decrease in non-housing repair and maintenance and private commercial new work, which decreased 2.5% and 4.0%, respectively. The only increase was private housing repair and maintenance, which grew by 0.2%.
This release follows construction output seeing a decrease of 1.0% in the three months to February. Similar to the previous quarter, this came solely from a decrease in new work (3.0% fall), as repair and maintenance increased by 1.6%.
Public sector borrowing
Public sector net borrowing, excluding public sector banks, in March 2024 was £11.9 billion — £4.7 billion less than that borrowed in March 2023 but still higher than forecast by analysts.
Furthermore, the year to March borrowing figure stands at £120.7 billion, which is £6.6 billion more than the Office for Budget Responsibility (OBR) had forecast.
Data from the ONS shows that interest on government debt was £2.5 billion in March, an increase of £0.4 billion as the interest payable rises and falls with the Retail Prices Index.
Government debt in March stood at 98.3% of GDP — up 2.6% year-on-year.
Some economists argue that a large economy such as the UK’s could borrow more than it currently does to aid economic growth, while others say it is currently too great a cost.
The OBR expects borrowing to rise slightly in the next financial year amid measures such as the Spring Budget’s cut in National Insurance.
Debt versus spend
Government borrowing tends to enter the spotlight when a general election looms, with questions about how much leeway a potential new government has when it comes to trade and budget deficits.
The UK is not alone in contending with rising debt, as debt-to-GDP ratios in developed Western OECD economies have all been on an upward trajectory.
UK government bond prices, though, are weakening as investors brace for interest rates to remain higher for longer than hoped. Consequently, yields are rising as bond traders want a higher rate of return for holding government debt.
For example, two-year UK bonds have recently weakened, pushing their yield above the 4% mark.
In this financial year alone, the Debt Management Office must raise £265 billion pounds, the second highest amount on record.
Meanwhile, both the Conservatives and Labour intend to get the national debt as a proportion of GDP falling within five years to meet wider fiscal rules.
Capital budgets — where more public sector investment would be a boost for the construction industry and its supply chains — are set to be cut over this period rather than the day-to-day resource spending.
Public Accounts Committee recommendations
Indeed, funds for long-term projects being used for day-to-day spending has arguably created systemic problems across central government department remits that now require significant investment to remedy.
According to a report laying out recommendations for a future government by parliamentary watchdog the Public Accounts Committee (PAC), major spending issues have created ‘the Big Nasties’ for any new government later this year.
One such area is the school estate. Over 700,000 pupils are learning in a building that is not fit for purpose — with 38% of school buildings beyond their initial design life.
A lack of forward planning from the Department for Education (DfE) is cited as a reason for this, along with a lack of understanding around safety risks — such as asbestos and reinforced autoclaved aerated concrete (RAAC) — for it to fully quantify and mitigate them.
The report also demonstrates the shortfall in capital funding the Department is allocated from the Treasury, with the DfE recommending £5.3 billion in annual funds to maintain schools and mitigate risks in its 2020 Spending Review yet subsequently receiving £3.1 billion average annual capital funding.
Hospital buildings are also flagged as a major risk that is preventing the NHS from modernising and hampering productivity. The Department of Health and Social Care is accused of “raiding capital budget funds” — an underlying cause of the estates crisis the NHS is now in and similarly affected by RAAC.
Future pipeline
The majority of respondents do not believe the National Infrastructure and Construction Pipeline’s £700 billion investment will be delivered. At 36%, high construction inflation and costs were deemed as the primary factor for this.
Indeed, the government’s own analysis recognises the challenges that inflation poses, such as adjusted outputs to remain on budget. Similarly, planning delays/legal challenges — ranked second with a quarter of respondents — are acknowledged as systemic barriers to the efficacy of the National Planning Policy Statements, for which updates are underway.
General election
Respondents to our survey see the Labour Party as most likely to win the next general election, with almost three-quarters of respondents again this quarter.
Labour and the Conservatives are on opposite trajectories when viewed as offering the most support for construction and real estate. While the Conservatives have dropped here in two consecutive quarters, Labour continues to be viewed more favourably, with 37% of respondents now deeming them most supportive — up from 29% last quarter.
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