Construction sector needs government help to boost economic recovery across UK, Ireland and EU

By Chris Wheal

July 30, 2024

Construction Products Association says downturn is worse that previously predicted

The naysayers and doom-mongers of the UK Construction Products Association revised down their forecast for the sector this year, suggesting the fall of 2.2% predicted in spring will now be a fall of 2.9%. 

And that was before the new Labour Chancellor, Rachel Reeves, announced on Monday that she was pulling the plug on several large infrastructure projects, including a big hospital-building programme and the tunnel under historic Stonehenge.

The CPA summer forecast had said “Infrastructure output is expected to remain flat (0.0%) at a high level, before growth of 1.7% in 2025 and 3.9% in 2026”. It said infrastructure is the third-largest construction sector, worth £28.9bn in 2023.

The two largest sectors are:

· Private housing new build, worth £35.5bn in 2023 despite the 14.0% fall in activity last year

· Private housing repair, maintenance and improvement (rmi), worth £30.5bn in 2023 (though the CPA questions whether this official figure is correct)

The revised summer forecast warned these had failed to rebound as expected. The CPA blamed an overcautious Bank of England for failing to cut interest rates fast enough. It also had concerns that “uncertainty around responsibilities throughout the whole construction supply chain from the Building Safety Act may also delay the delivery of some larger, high-rise projects”.

Recovery in 2025

Construction’s bounceback is now expected next year, with growth of 2.0% and a further rise of 3.6% in 2026. The new report’s key predictions were:

· Construction output falls by 2.9% in 2024 and rises by 2.0% in 2025

· Private housing output falls by 7.0% in 2024 and rises by 6.0% in 2025 

· Private housing repair, maintenance and improvement to fall by 6.0% in 2024 before rising by 2.0% in 2025 

· Infrastructure output remains flat in 2024 and rise by 1.7% in 2025 

· Industrial output to fall by 7.4% in 2024 and by 3.5% in 2025

Rebecca Larkin, CPA head of construction research, said: “As the two largest sectors of construction account for over one-third of total output, the fortunes of private housing new-build and repair, maintenance and improvement heavily influence overall construction performance. 

“Activity in both has been held back by interest rates remaining at peak for longer than previously expected, which is delaying the recovery in housing market demand, new build sales and improvements spending that typically occurs after a house purchase. Interest rate cuts and a pickup in sentiment are expected to start in the second half of this year but, realistically, it will take until 2025 for the recovery to be felt more strongly. 

“Off the back of the election there have been clear signs of intent from the new government, particularly around potential changes to planning policy to improve housing and infrastructure delivery. However, with little detail at this stage, it is difficult to see any near-term uplift, whilst long-running concerns over skills shortages and the loss of construction workers, which have worsened dramatically in recent years, present the biggest risk to longer-term growth.” 

Down in the EU

The EU is not looking much better. The latest Eurostat construction production release this month (to May) reports that year-on-year production in construction was down by 2.4% in the euro area and by 2.5% in the EU compared with May 2023. Looking at the month, from April to May, it down by 0.9% in the euro area and by 1.0% in the EU.

Ireland sat mid-table, in neither the biggest winners or biggest losers lists. Exactly how well the Irish construction sector is doing is hard to tell – Ireland keeps its figures confidential as they would reveal the results of a few large players.

What is in little doubt is that the industry in Ireland would like more work. Responding to the recent National Competitiveness and Productivity Council report, Ireland’s Competitiveness Challenge 2024, the Construction Industry Federation (CIF) demanded more investment.

Hubert Fitzpatrick, CIF director general, said: “While the report references that the economy is operating at full capacity, we reiterate that the construction industry has the capacity to deliver.”

He added: “We urge government to address capacity constraints of key portfolios including water, energy, transport, health and education to support the growing population, maintain jobs and foreign direct investment, and sustain strong economic growth.”

Is your government doing enough?