Turner & Townsend’s Spring 2024 UK Market Intelligence (UKMI) report talks of ‘continued headwinds’, with the UK in recession and facing political uncertainty in the approach to a general election.
However, it argues for investment decisions to be ‘made not delayed’, and for project teams to secure their supply chains to help tackle high inflation.
The business has increased its 2024 tender price inflation forecast for real estate (building) to 3.2%, up from the 2.7% it previously predicted in December. For infrastructure (civil engineering), Turner & Townsend’s forecast remains at 4.5%, though this is lower than the 5.5% seen in 2023 and 10% in 2022.
The construction industry’s outlook is mixed, the firm says. In 2023 construction saw 2% growth – far ahead of the 0.1% of the wider economy. But demand for new work in the sector has since weakened, with 2023 seeing the lowest rate of new orders since the onset of the global financial crisis in 2008.
Private house-building continues to be badly hit by the economic conditions and higher interest rates impacting both development viability and sales, with activity in continual decline since spring 2021. Industrial and commercial activity have also both contracted.
Despite this softening demand, Turner & Townsend’s forecasts point to costs remaining high. At the heart of this is both the high cost of borrowing as well as a mismatch of the skills needed in the sector. While redundancies and unemployment have risen as demand falls, there are still acute shortages of specialist skills, which are keeping labour costs up.
Like little orphan Annie, Turner & Townsend predicts that the sun will come out tomorrow and better times for UK construction are just around the corner. The current recession will be short-lived and shallow, it says, and confidence and investment will increase as the Bank of England cuts interest rates in response to overall falling inflation.
On the basis of this, Turner & Townsend is advising clients to secure and identify risk across the supply chain to make the most of the more positive conditions while mitigating the remaining challenges. Its UKMI report points to strategies such as conducting procurement and pre-qualification checks to minimise the risk of suppliers going bust. It also warns against the temptation to put too much contractual risk onto suppliers – instead working collaboratively to understand and share the potential impacts.
Martin Sudweeks, UK managing director of cost management at Turner & Townsend, said: “While the construction sector is still facing a host of complex challenges, there is plenty of room for optimism in 2024. Even as we head into a period of political and economic unknowns, built asset investment decisions are now being made, not delayed.
“This is not to say we’ve got an easy ride ahead of us. We still face structural issues, particularly the pressing skills shortage. To ensure growth while prices remain high and the future uncertain, effective cost and project management will be crucial. The greatest exposure to political uncertainty will run through the supply chain – so clients need to better understand their suppliers to identify and share risk. New contracting strategies, more robust procurement, and careful apportioning of risk through project teams will be essential.”
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