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Businesses Plan To Cut Staff Following Disaster Budget
On Monday 25 November, the CEO of the Confederation of British Industry revealed data that shows its members plan to reduce headcount following the tax...
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Big Hopes For The Return Of House Building & RMI
The Construction Products Association’s autumn forecast is cautiously optimistic for the housing new build and repair, maintenance and improvement markets.
The CPA expects both sectors to gradually return to health next year after an extremely challenging last 18 months for the two largest construction sectors.
Overall, total construction output is forecast to rise by 2.5% in 2025 and 3.8% in 2026 after falling by 2.9% this year.
Private housing
In private housing – the largest construction sector – falls in interest rates and mortgage rates appear to be leading to a gradual recovery in demand. This is expected to lead to better prospects for house builders. The new government has shown clear intent to boost house building through easing planning by proposing major changes to the national planning policy framework, which could ease one of the most-cited supply constraints, particularly for smaller house builders.
Despite this, however, the key fundamental supply issues remain the same – a lack of planning resources at the local authority level, nutrient and water neutrality issues and ‘Biodiversity Net Gain’.
There also appear to be considerable delays in starting high-rise housing and some commercial buildings due to uncertainty over the Building Safety Act and a lack of capacity at the Building Safety Regulator. Despite this, after a 9.0% fall in activity this year, private housing output is forecast to rise by 8.0% in 2025 and 7.0% in 2026. In addition, the risks tend to favour the upside, if the Chancellor has used her autumn budget to enable further demand in the private housing market and substantially increase funding for affordable housing near-term.
Repair, maintenance and improvement
Private housing RMI, the second-largest construction sector, is heavily dependent on consumer sentiment, real wage growth and home moves, which drive an increase in significant home improvements within 6-9 months of moving into a property. The expected recovery in the wider housing market, combined with improving consumer confidence and sustained real wage growth, is likely to boost activity from 2025 Q2.
In addition, there has been a shift in home improvement spending over the last two years towards energy-efficiency retrofit and solar photovoltaic work, which continues to remain strong whilst building safety activity also provides a steady pipeline of activity. Overall, private housing RMI output is forecast to rise 3.0% in 2025 and 4.0% in 2026 after a 4.0% fall in activity this year.
Health, education and infrastructure
The outlook for construction sectors outside of housing remains similar to three months ago, although, given that the government is the largest client in construction by far, accounting for almost one-quarter of all projects in the £180 billion industry, the autumn budget could have significant implications for critically needed investment in health, education and infrastructure.
Infrastructure, the third-largest construction sector, is forecast to rise by 1.6% in 2025 and 3.8% in 2026 after falling marginally, by 0.4%, this year.
CPA economics director Noble Francis says: “Construction has suffered a very challenging period over the past two years, with sharp downturns in the two largest sectors, private housing new build and repair, maintenance and improvement. However, cautious optimism appears to be creeping back into the industry. Broader UK economic growth, helped by lower interest rates and sustained real wage growth, combined with a stable government, appears to be leading to improving consumer and business investment.
10,000 firms lost
“There are significant upside risks to the forecasts if the new government can improve the delivery of house building and infrastructure. However, downside risks continue to prevail. The UK construction industry has lost over 10,000 firms in the last two years. ISG, the 6th largest construction firm, is the latest example, as high costs, project delays and skills shortages on fixed-price contracts acutely affect the whole supply chain. In addition, concerns remain over whether the government will cut capital expenditure and pause, delay, review and cancel yet more investment in key infrastructure projects in the short-term to meet its fiscal rules. If so, falls in infrastructure activity could overshadow recovery in house building and RMI.”
Picture: The CPA's forecast for the next two years has been published.
www.constructionproducts.org.uk
Article written by Cathryn Ellis
30th October 2024