Construction output in Q4 2023 reflected the ONS’s news of a confirmed recession, as both quarterly and monthly output decreased
New work continues to deflate construction output, as both quarterly and monthly assessments showed a decline of 5.0% and 1.1%, respectively.
Repair and maintenance remain buoyant, increasing 0.4% in December 2023 and 4.0% in Quarter 4 (Oct to Dec) 2023.
Overall output saw a decrease of 1.3% compared with Quarter 3 (July to Sept) 2023, and monthly construction output is estimated to have decreased 0.5% in volume terms in December 2023.
Three out of the nine sectors saw a fall in December 2023
Main contributors to the monthly decrease were seen in infrastructure new work, and private housing repair and maintenance, which decreased 6.4% and 1.1%, respectively.
Total construction new orders decreased 13.1% (£1,361m) in Quarter 4 2023 compared with Quarter 3 2023; this quarterly fall came mainly from the private commercial and industrial sectors, which decreased 18.1 % (£542m) and 27.6% (£320m), respectively.
Mike Hedges, company operations director at Beard, said: “Much like we have seen throughout the last 12 months, both December and Quarter 4 saw the increasing trend of repair and maintenance over committing to brand-new projects. This is as much driven by the economic climate and tougher borrowing conditions, as it is the shifting focus among a number of our customers to prioritise the improvement of existing building assets.”
Although minor, annual construction output continues to grow
The annual rate of construction output price growth was 3.1% in the 12 months to December 2023; this has slowed from the record annual price growth in May 2022 and June 2022 (10.7%).
However, annual construction output increased by 2.0% in 2023 compared with 2022; this is the third consecutive year of annual growth.
Economic adversity affects the entire supply chain
Richard Besant, director at Powdertech: “In our opinion, the relatively long construction cycle has led contractors and developers to place their budgets under intense scrutiny.
“This inevitably led to delays or cancellation of developments, shrinking project scopes, and the specification of cheaper, imported, and often lower-quality materials. This is having a knock-on effect which is negatively affecting UK building product manufacturers and suppliers alike.
“Subcontractors will also bear the brunt. Principal Contractors are continuing to extend sub-contractor payment periods, resulting in a rise in insolvency and defaulting on loans across the industry.
“From the asset owner’s perspective, this high degree of economic uncertainty is leading to concerns that the eventual return on investment might not align with original expectations.
“For example, occupancy rates in commercial properties are likely to be far lower than originally expected, increasing the financial risk. It’s a perfect storm all the way down the supply chain, putting immense pressure on a sector that is still struggling to overcome the twin aftershock of Brexit and the Pandemic.”
Russell Haworth, NBS and Glenigan’s CEO, remains optimistic
“Today’s GDP figures will come as little surprise to the construction industry, where a challenging economic climate has been putting the brakes on work starting on-site for some time. Restrained private sector investment, a housing market slowdown, weak UK economic growth, and high-interest rates have repeatedly knocked the sector, suppressing activity.
“Despite the doom and gloom, I’m hopeful. Glenigan’s latest Construction Forecast, based on analysis of our extensive database of active construction projects, suggests the end is in sight.
“Our economists predict the construction industry will grow gradually (+8%) in the latter half of 2024, despite ongoing contraction in the first quarter. The prospect of a recovering economy and market certainty is set to lift consumer and business confidence, boosting the industry.
“I want to remind those in the industry that although conditions remain tough for now, firm development pipelines are already pulling through to support a rise in non-residential verticals such as industrial and offices. Similarly, improved household spending is expected to lift activity in consumer-related verticals, including private housing and retail.
“Hang in there, and there will be opportunities for hungry and agile contractors to target these growing markets and finish the year on top.”
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