Glenigan Forecasts Post Election boost for UK Construction Sector

Glenigan has released its widely anticipated UK Construction Industry Forecast 2024-2026. The key takeaway from this Forecast, which focuses on the next three years (2024-2026), is that the construction industry will face near-term challenges including slow economic growth and persistently high interest rates. These factors are expected to further constrain private-sector investment and delay public-sector projects.

However, the outlook brightens as the forecast period progresses. The new Government, which has a substantial majority, is already reducing political uncertainty and rallying markets. Policy decisions around construction projects will likely be made at a faster pace, boosting performance. This points to a strengthening economy expected to boost consumer spending and investor confidence in the back-end of 2024.

This signals recovery in the not-so-distant future, with a modest increase in project-starts predicted in the latter half of 2024 lifting starts by 3% this year. As the economy picks up further in 2025, Glenigan forecasts 7% growth, and 6% in 2026.

Disruption stifles short-term growth

Construction starts have remained sluggish during the first six months of 2024, as high interest rates and a weak economic outlook dented investor and consumer confidence.

The General Election has also affected the pipeline of public-sector construction projects. The purdah period has disrupted the progress of public-funded projects, while decisions will also be delayed post-election as the new Labour government reviews existing programmes such as the Lower Thames Crossing.

Starts on the up

However, an easing in borrowing costs and improved economic conditions – with the UK economy forecast to grow around 0.8% in 2024 – together with greater political certainty, should help to lift investor confidence from the second half of 2024 and into next year.

Despite a tough start, renewed growth in project-starts is forecast for H2 2024. The gradual easing of interest rates is also expected to feed through to lift housing market activity from the second half of this year.

Further, the Spending Review will set out the new government’s funding commitments and priorities and is expected to strengthen public sector construction activity during the second half of the forecast period.

Commenting on the Forecast, Glenigan’s Economic Director Allan Wilen says, “There are signs of growth, signalling a gradual recovery. For example, in the private housing sector, we anticipate starts will pick up in the latter half of this year, driven by improved affordability and brighter economic prospects. Similarly, we’re forecasting improved activity in consumer-related verticals such as retail and hotel & leisure, as a gradual easing in price inflation is set to provide a boost to households’ spending power. Elsewhere, structural changes are expected to create new opportunities in office refurb and fit-out, while logistics is poised for renewed investment fuelled by online retail growth.

However, he acknowledges the seismic results of the recent General Election will have a significant upfront impact on industry performance, particularly in the public sector, “No one could have predicted a landslide of such large proportions and, whilst the uncertainty during the pre-Election period hinted at a slower pace of recovery, we could easily see an acceleration as the Labour Government removes barriers to getting shovels in the ground from easing planning restrictions to embarking on major capital projects. It will be interesting to return to our predications in November, when the new administration has had time to make its mark, announce its autumn budget and publish its keenly anticipated Spending Review.”