UK construction set for 2023 recession
According to Experian's construction forecasting unit, a 1.7% dip in construction activity is predicted for this year before the industry returns to modest growth in 2024. This prediction is due to the economic headwinds faced by the industry. However, economists have a relatively less pessimistic outlook for 2023 and predict that inflation, higher borrowing costs, and labour rate rises will fade next year allowing construction to ease back into a 1.1% growth in 2024.
This outlook contrasts with the Construction Products Association's predictions of a sharper near 4% contraction in workloads for firms. Experian predicts that new work will bear the brunt of the downturn this year falling by 2.4%, largely due to a near 7% fall in new housing work. This is caused by falling home prices, the cost of living crisis, and higher borrowing rates.
Other new build sectors of construction are expected to escape with stable output or even see sluggish growth, according to Experian. A backlog of new orders for prisons, defence, and some new hospital work should help the non-residential sector achieve modest year-on-year growth in 2023 and 2024, of between 1.5% and 2%. However, this growth will depend on how public authorities manage rising costs before accelerating to around 3% in 2025.
According to industry experts, infrastructure output is expected to stabilize this year before increasing by around 2% in 2024 and by 3% in 2025, reaching a new record high as major projects such as HS2 and Hinkley Point C move into peak construction. However, forecasters have also warned that constrained budgets in the face of higher materials prices could lead to potential downsides.
Industrial construction, which saw exceptional expansion in the past year, is expected to have much more muted prospects in the future with only marginal growth this year, a marginal decline in 2024, and a relatively modest rise in output in 2025. Even the commercial sector is expected to face challenges with a predicted 0.8% growth, although this growth is still 23% down on the 2008 peak.
Overall, the construction industry is expected to experience a mixed performance in the coming years with infrastructure projects providing a glimmer of hope but with challenges faced in other sectors such as industrial and commercial construction.