How will the construction industry be affected by the economy in 2023?

It has been reported that Britain is expected to be the only major industrialised country to see its economy shrink this year, after the IMF warned that the UK economy is expected to contract by 0.6% in 2023. The cost of living crisis and increasing interest rates continue to have a wide-spread effect on both individuals and businesses across the UK – but how has construction been affected and what are some of the predictions for this particular industry over the next couple of years?

As one would expect, the end of 2022 saw the construction sector slow down considerably, with surveys showing construction activity falling at its sharpest rate since the height of the COVID-19 pandemic in 2020. Construction output is now forecasted to fall by 4.7% this year, a rather gloomy statistic to add to the mix. High borrowing costs, economic uncertainty, cancelled sales and the end of the Help to Buy Scheme have all contributed to the curtailment of building projects across the UK.

The significant impact on mortgage rates over the last year has of course had a knock on effect on the UK’s housing market demand. In fact, it has been reported that the UK’s three largest housebuilders (Taylor Wimpey, Persimmon and Barratt Developments) have all been cutting back on new projects as a result of the downturn in the property market.

Earlier this month, the Financial Times commented on the construction industry in the UK and how construction companies are charging the highest rates for commercial building work in more than two decades as a result of soaring labour, material and energy costs. With some contractors already in a financially weak position, insolvencies are said to be likely to increase due to the inability of such contractors to pass on the increase in material costs to customers (as many contracts were agreed prior to the surge in costs). It was reported that construction companies in the UK went out of business at the highest rate in a decade over the last year, with fears that these figures will continue to rise in 2023.

Despite the current economic uncertainty, it is argued that the construction industry is still expected to grow, albeit slowly, over the next few years. In fact, CITB’s annual CSN report shows that 224,900 extra workers (44,980 a year) will still be required to meet UK construction demand between now and 2027. Whilst a recession is expected in 2023, it has also been reported that a slow growth is predicted to return in 2024 and, if projected growth is met, by 2027 the number of people working in the construction industry will be 2.67 million. So it may not all be doom and gloom. CITB’s report highlights that construction is expected to remain a sector where there is demand for workers despite the current economic uncertainty and different areas of the construction industry will experience differing growth rates over the next couple of years.

Of course, there will be construction companies that are not affected as significantly as others during the suspected recession, with many contractors still choosing to adopt a positive outlook and arguably ‘flourishing’ despite the recent period of uncertainty. Many point to the construction industry’s positive recovery following the COVID-19 pandemic and hope that the industry will pull through, just as it did before.

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