UK construction industry needs to invest in innovation and productivity to build resilience, warns report

For infrastructure, TPI is anticipated to be 5.5 per cent over 2023 and soften slightly to five per cent in 2024. This is partly being fuelled by the government’s recommitment to infrastructure spending including projects such as Sizewell C and HS2.

The UK economy is edging closer to recession and the report points to growing uncertainty in contractors’ pipelines. The Construction Products Association winter construction output forecasts suggests activity may fall by as much as 4.7 per cent in 2023.

However, resilient demand and pockets of growth may maintain high tender pricing from contractors in specific sectors such as industrial development and infrastructure through 2023.

And despite falling for only the second time in 27 months in October 2022, the cost of construction materials and components are still 44 per cent higher than pre-Covid 19 levels. These elevated costs could remain for as long as energy prices stay high and sterling is undervalued.

The ongoing skills shortage is also buoying labour costs as border closures, early retirement and workers switching to different industries are having an impact.

The Royal Institute of Chartered Surveyors’ Building Cost Information Service suggests labour costs may increase by up to 8.1 per cent in 2024. Price pressures are also being exacerbated by the weakening of industry capacity due to rising insolvencies.

While the economic indicators are still giving mixed messages, the report states that both the economy and UK construction are entering a sustained period of weakness. Whether the technical definition of a recession is met or not, the softening economy and decline in business sentiment will both pose significant challenges to the construction industry.

Michael Grace, director at Leeds-based Turner & Townsend, said: “Yorkshire is facing a complex economic situation and we should be careful of assuming the rules of past recessions will be the case this time around – or that they will impact all sectors and projects similarly.”

He added: “While the scale and duration of the potential recession are still unclear, we know the construction sector needs to invest in building its long-term resilience to aid recovery.

"Innovation and productivity can fall by the wayside when times are difficult, so we need to be disciplined in prioritising that investment in the coming year – from putting data at the centre of all of our projects to make informed decisions, to making better use of modern methods of construction.

“Though we face continued pricing and capacity challenges; with a long-term, pragmatic view, focusing on efficiencies, understanding our supply chains and potential risks, we can build our resilience and a better road to recovery.”