UK construction trends

The construction sector has experienced an industry decline due to material and labour supply shortages, in addition to stalled economic growth and higher interest rates. Although private sector investment and housing market activity is expected to remain sluggish, an evolving investment landscape from London to other parts of the UK suggests the industry can be cautiously upbeat as economic conditions improve.

Construction insights company Glenigan has predicted an industry increase of 12% in the UK in 2024 and 3% in 2025. However, these forecasts are based on the delivery of existing and planned capital projects which are critical to the sector’s activity levels¹.

The government’s recent u-turn to scrap the northern leg of the HS2 high-speed railway project could have significant implications for many contractors. But the controversial decision could also create new opportunities if the government’s promise to divert the £36bn earmarked for HS2 into new projects come to fruition.

Global economic factors and industry challenges will continue to influence construction costs in 2024. These challenges include rising materials and labour costs, fluctuating energy prices and interest rates, as well as international influences such as the war in Ukraine.

Small independent contractors with less than ten employees dominate the industry due to partnerships, frameworks and joint ventures with larger contractors. These firms are particularly vulnerable to rising cost pressures due to operating on fixed-price construction contracts.

According to research published by Southern Construction Framework (SCF), building costs increased by an average of 3% in the second quarter of 2023 compared to the previous quarter. This was as a result of inflationary pressures due to rising utilities and labour costs. On a more positive note, data from the Department for Business and Trade’s Construction Material Price Index highlighted that material prices fell slightly in June and are now 2% lower than a year ago³.

The S&P Global/CIPS UK September 2023 Purchasing Managers’ Index (PMI) suggests further grains of optimism. Whilst highlighting higher fuel bills and certain raw material prices, some of these financial pressures were eased by a fall in shipping costs and increased price competition among suppliers⁴.

Undoubtedly though, many UK construction businesses are battling financial constraints in a tougher credit environment. It is estimated that just over half of the construction sector’s SMEs are relying on credit to fund their insurance coverages, making the construction sector the biggest borrower⁵.

The current trend of construction plant and equipment theft shows no signs of abating. The UK construction industry reportedly suffers annual losses of over £800m a year as a result of plant theft. This figure comprises equipment replacement costs, estimated loss of business from project delays and increased insurance premiums⁶.

Commonly stolen items range from portable power tools and small supplies to heavy machinery and metals. Despite almost nine in ten tradespeople experiencing theft, less than half (43%) admitted to not having a full list or knowing the value of the equipment they own which could hinder their chances of recovering stolen items⁷.

The cost of living crisis has been exacerbated by rising inflation, supply chain disruptions and the aftereffects of the Covid-19 pandemic. Tool theft has rocketed during this period and is likely to continue, with analysis suggesting that, on average, over 100 tools are stolen in the UK each day. Nearly half of all cases are recorded in London, with Essex, West Yorkshire, the West Midlands and Gwent also identified as crime hotspots.

The construction industry is reducing its impact on climate change through a greater emphasis placed on sustainable practices, emissions cuts, and renewable energy use. A report published by the Construction Leadership Council has revealed that the construction sector is currently ‘on track’ on four out of nine of the following ‘net-zero’ priorities⁹:

• Accelerating the shift of the construction workforce to zero-emission vehicles and onsite plant.
• Championing developments of infrastructure investments that enable low-carbon modes of transport.
• Scaling up industry capability to deliver low-carbon heat solutions in buildings.
• Enhancing the energy performance of new and existing buildings through higher operational energy efficiency standards and better building energy performance.

Whilst progress towards decarbonisation is being made, there is clearly a long way to go. Construction is responsible for 40% of global emissions and materials footprints, and has come under considerable pressure to lessen its environmental impact. Despite the government postponing some green policies in September 2023, sustainability still represents a significant opportunity for the construction industry to invest in green technologies to meet regulatory demands and gain a competitive advantage.

The transition from internal combustion engines to electric vehicles could soon be eclipsed by the emergence of hydrogen technologies as a zero-carbon fuel alternative. This year, the government approved the use of the world’s first hydrogen-powered digger to drive on UK roads. The JCB digger is powered by a hydrogen combustion engine and offers a pioneering solution to help reduce emissions on construction sites. In total, JCB is investing £100mn to produce super-efficient hydrogen engines, which includes the development of a mobile hydrogen refuelling unit to allow for easy transportation of hydrogen onsite.