According to data collected and analysed by BCIS, total construction output has only just reached pre-pandemic levels, largely driven by growth in the repair and maintenance sector, but new-build work is still below 2019 levels.
David Crosthwaite, head of consultancy services at BCIS, explained their forecasts suggest new construction work output won’t return to pre-crisis levels until late 2027 – almost eight years of no real growth in the sector.
“Stagflation is a very real possibility, not only in our sector but across the wider economy. Little or no growth coupled with high inflation is a very poor environment for construction investment.
“The positive news is that it appears supply constraints are easing, leading to costs and prices stabilising in the long run. We think inflation has peaked and we could be over the worst of it – all eyes are now turning to the length and depth of recession.”
BCIS also predicted a slowdown in the private housing sector over the next couple of years before a rebound, but output is still expected to remain below pre-crisis levels.
Meanwhile, Office for National Statistics (ONS) data found that construction output increased 0.8% in October, marking a fourth consecutive month’s display of growth.
According to David Savage, partner at Charles Russell Speechlys, this is a sign that the sector is holding strong during a difficult period.
Savage highlighted that “developers and investors are well aware of the challenges they face as we enter the winter period, with double-digit inflation, structurally higher interest rates and continued construction labour shortages all cause for concern in the months ahead”.
The ONS data found that at the sector level, five out of the nine sectors saw a rise in October 2022, with the main contributors to the monthly increase seen in private new housing and non-housing repair and maintenance, which increased 2.9% and 1.7% respectively.
The level of construction output in October 2022 was up 4.8% at £698m above the February 2020 pre-pandemic level, while new work was up 0.2% at £21m above its February 2020 level. Repair and maintenance work was up 13.5% at £677m above the February 2020 level.
Crosthwaite added that infrastructure growth is predicted to continue, noting that spending may be used as a stimulant to boost the wider economy.
He said: “The repair and maintenance sector will continue to grow, but sectors reliant on new investment will stagnate, as well as those relying on public spending and government borrowing.”
Savage concluded: “Next month’s data will be key: will construction fall into trend with the wider UK economy or will November show further growth as the impact of relative political stability kicks in?”
Source: Property Week