Respondents to our 3Q 2024 survey identified interest rates and inflation, insolvencies/supply chain capacity and global tensions as construction’s most significant threats. Recent news reports have highlighted these challenges. Construction insolvency rates remain high, with contractors experiencing substantial losses due to factors such as subcontractor failures, labour shortages, and building safety liabilities. Furthermore, Lendlease's unexpected decision to exit the UK market has exacerbated industry concerns.

Despite these issues, there are some positive developments, 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, indicating sustained industry growth. 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 for increased construction activity.

Our new sentiment analysis tool has determined a sentiment score of 67%, indicating cautious optimism within the construction industry. This score stems from a thorough evaluation of industry press and social media, employing natural language processing (NLP) techniques to gauge industry sentiment and pinpoint key topics. Our artificial intelligence model then synthesises this information to produce an overall reading.

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.

However, public finances are under significant strain. Chancellor Rachel Reeves announced cuts intended to bridge the gap between tax revenues and projected spending, including plans to cancel some road and rail projects, such as the Stonehenge road tunnel. There is also concern that skills shortages may limit progress.

A slowdown in activity has temporarily alleviated labour pressures to some extent and materials cost increases have stabilised. 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 reeling from recent pressures related to cost escalation, labour availability challenges and the effects of insolvencies, resulting in greater selectivity regarding opportunities pursued. This will likely become more apparent as activity picks up.

As per our previous advice, it is important to consider inflation on a case-by-case basis: factors such as size, sector, specification and procurement and tendering strategies can significantly influence tender prices. Additionally, understanding regional and sector-specific market dynamics remains crucial as this affects supply chain appetite and pricing.