Economic Briefing

Learning Points

1. Stability, recovery, challenges… The economy is currently facing a mix of challenges and opportunities. GDP growth is projected to be strong within the G7, with consumer price inflation expected to stabilize around 2%. The construction industry is showing signs of recovery, with new orders rising and output expected to increase by 3% next year. However, the sector is also dealing with high insolvency rates, labor shortages, and rising costs. The outlook is cautiously optimistic, with private investments and government infrastructure projects driving growth.

2. Targets, investments, growth… Government policies are focused on ambitious targets, such as building 1.5 million new homes and investing heavily in infrastructure. The introduction of a £50 billion infrastructure investment promise and the success of the investment summit, which raised £63 billion, are significant. These policies aim to unlock investment, drive regional growth, and achieve net-zero targets. However, challenges remain, including planning reforms and resource shortages. The government’s long-term planning and commitment to infrastructure are expected to provide stability and confidence in the construction sector.

3. Insolvencies, shortages, costs… The construction sector is grappling with several challenges, including high insolvency rates, labor shortages, and rising costs. Notable companies like ISG have gone into administration, highlighting the sector’s vulnerability. The loss of capacity, especially among specialized installers and regional contractors, is a major concern. Labor shortages, both blue-collar and white-collar, are exacerbated by competition for skilled workers across Europe and beyond. Additionally, incomplete and delayed information, as well as insurance issues, are adding to the sector’s difficulties. Addressing these challenges is crucial for the industry’s stability and growth.

4. Materials, labor, increases… The main cost drivers in the construction industry are materials and labor. Material costs peaked after the Ukraine invasion but have since stabilized, while labor costs continue to rise due to inflation and shortages. Tender prices are forecasted to increase gradually, with an expected rise of over 2% in 2024, reaching up to 4% by 2027. The forecast assumes stable material costs but anticipates labor shortages to be the key driver of cost increases. Planning resource constraints and affordability issues are also expected to impact the pipeline of projects and overall costs.

5. Optimistic, planning, support… The future outlook for the construction industry is cautiously optimistic, driven by private investments and government infrastructure projects. Recommendations include simplifying planning processes, supporting small and medium-sized builders, and addressing labor shortages. The government’s long-term planning and infrastructure investments are expected to provide stability and confidence. However, challenges such as planning resource constraints and affordability issues need to be addressed. The focus on decarbonization and net-zero targets will also require investment in green collar workers and new technologies to drive sustainable growth in the sector.