As economic pressures ease and a new government takes charge, the outlook for the UK construction industry is increasingly optimistic. However, challenges persist. Viability and pipeline delivery are threatened by stubborn capacity issues and skill shortages. Our new sentiment analysis tool has calculated a sentiment score of 67%, reflecting cautious optimism in the construction industry. This score results from a comprehensive evaluation of industry press and social media, using natural language processing (NLP) techniques to assess industry sentiment and identify key topics. Our artificial intelligence model synthesises this data to generate an overall reading.

Encouragingly, the August release of the S&P Global UK Construction Purchasing Managers’ Index (PMI) remained above the 50.0 no-change mark for the fifth consecutive month in July, reflecting sustained growth in the industry. Additionally, the Bank of England's recent decision to cut interest rates for the first time since the pandemic began in March 2020 has raised expectations of increased construction activity.

Despite these encouraging signs, our 3Q 2024 survey respondents identified interest rates and inflation, insolvencies/supply chain capacity and global tensions as construction’s most significant threats. Recent headlines have shone a light on these challenges. Construction insolvency figures remain high, with contractors reporting substantial losses due to factors such as subcontractor failures, labour shortages and building safety liabilities. Additionally, the unexpected announcement that Lendlease will withdraw from the UK market has added to industry concerns.

A slowdown in activity has temporarily alleviated labour pressures to some extent and materials cost increases have stabilised. Anecdotal feedback suggests that the supply chain in some sectors and regions is willing to consider single stage competitive tenders. However, four in ten of our survey respondents told us they had experienced difficulties in securing a sufficient number of tenderers in 2Q 2024 due to ongoing capacity issues and a generally cautious supply chain.

In the King's Speech, the government outlined promising commitments, including planning reform and streamlining infrastructure delivery. This renewed focus on construction is both welcome and necessary to achieve key policies, such as delivering 1.5 million new homes and advancing Great British Energy.

The number of construction and housing ministers now stands at ten a piece over just a five-year period, underscoring the need for stability. Nearly 70% of our 3Q 2024 survey respondents feel that construction and real estate are top priorities for the new government. Better engagement with the industry will help improve the planning and delivery of projects and programmes.

However, public finances are under significant pressure. Chancellor Rachel Reeves announced cuts designed to close the gap between tax revenues and expected spending, including plans to cancel some road and rail projects, reduce spending on external consultants and cut public sector waste.

These fiscal constraints raise concerns about whether the construction industry will receive the long-term commitment and visibility of pipeline it needs for investment. There are also worries that short-term decisions could lead to more significant issues in the future, especially given the urgent need for government departments to reverse the trend of declining capital expenditure on their ageing infrastructure, evidenced by the impacts of the reinforced autoclaved aerated concrete (RAAC) crisis across the education and health sectors. There is also concern that skills shortages may limit delivery.

The government has a lot of balls to juggle; how can it support growth and prosperity? There are also wider issues around sustainability and acting on commitments to transition to net zero carbon. Seven years on from the Grenfell Tower fire tragedy, 57% of survey respondents say there is insufficient progress to make buildings safer.

How can the government and the construction industry find the right balance?

Overall, our survey respondents were positive towards Labour’s policies – 57% think plans to merge the National Infrastructure Commission and Infrastructure and Project Authority will improve project delivery, and 43% support the building of nationally significant infrastructure projects on green belt land.

The government is reportedly investigating how artificial intelligence can be used to enhance productivity and boost spending and its use also presents great opportunities for construction. Four in ten of our 3Q 2024 survey respondents said they have already integrated artificial intelligence tools into their workplace activities.

The construction industry must continue its drive for efficiency, leveraging digital and artificial intelligence tools to optimise resources and broaden its appeal. By finding the sweet spot between innovation and traditional methods, the industry can address current challenges, improve project delivery and contribute significantly to the UK's growth and sustainability goals. Enhanced collaboration between the government and industry stakeholders will be key to ensuring a balanced approach that meets economic, social and environmental objectives.