The latest figures from independent construction market forecasting network Euroconstruct show that UK saw a 5.6% growth in construction output in 2022 compared to Europe’s 3.0% average.
But European construction output for 2023 is expected to fall by 1.1% due to inflation, interest rate hikes and the slowing global economy and a negative forecast for 2023 brings the UK into line with its European neighbours.
Data specialist Barbour ABI works within Euroconstruct in partnership with UK chair Experian. Barbour’s chief economist, Tony Hall, said: “There was an unexpected bump last year as energy prices stabilised and supply constraints eased. This now appears to have been a transitional period with new pressures in the shape of interest rate hikes and inflation beginning to weigh on the European construction sector. The effects of post-covid recovery are also fading, leading to a slower global economy.
“The UK appears to be faring reasonably well, sitting close to the average and measuring well against the likes of France and Germany. The UK has also avoided some of the more extreme swings in construction output forecast in countries like Sweden, Finland, Italy and Hungary. However, challenges still lie ahead, and uncertainty remains.”
Challenges in the residential sector were the major factor in Europe’s negative forecast. Mortgage rates have doubled in most EU countries and tripled in Finland, Slovakia, Switzerland and the UK. Meanwhile, high-interest rates and increased costs are making financing more difficult.
Figures show new European residential construction is set for a big fall this year and the UK is a relatively poor performer, with a 7.1% drop. In the most extreme cases, countries like Sweden could see a fall of more than 30%.
In civil engineering, long-term projects, public financing and government-led stimulus helped the sector to outperform others through the uncertainty of the past few years. The UK is up 21% on pre-pandemic levels in terms of output but this is now likely to see reduced growth as investment falls in real terms. In Europe as a whole, forecasts predict consistent increases in 2023 and 2024 whilst UK growth is expected to fall.
Inflated construction prices are also a problem. Last year, last year saw double-digit growth in construction prices across Europe. That trend is expected to ease 2023-24 but the UK is predicted to suffer with an 8.1% increase in prices compared with 6.5% in Europe.
Hall commented: “Barbour ABI recently reported that inflation had added £23bn to the cost of UK construction in 2022. Euroconstruct’s figures show a similar impact in Europe and suggest the situation will not have improved by the end of 2023 – on the continent or in the UK. As such price inflation will continue to weigh heavily on the viability of new construction projects.”
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