It’s no secret that many challenges have faced the UK construction industry; things haven’t been smooth sailing from the 2008 recession to the Covid-19 pandemic.
What are some of the most pressing challenges that UK construction businesses face in 2023 and beyond?
Construction slowdown
The UK economy is set to enter a recession in 2023 when GDP will fall by 1.4%, according to the Office for Budget Responsibility.
While that’s a UK-wide estimate, the construction sector will likely contribute to this fall in economic output.
According to Arcadis, a slowdown will hit construction from 2023 to 2025. This downturn in economic activity can be expected for several reasons:
High costs
2022 was largely defined by high inflation, which was especially troublesome for the construction industry; after all, construction relies heavily on energy-intensive materials (in 2022, aggregate costs rose by 53% alone). Fragility in supply chains has also contributed to higher costs.
Unfortunately, inflation will continue to affect the industry in 2023. Arcadia estimates that infrastructure inflation will be 7% for 2023, subsequently falling to 4% in 2024 and 2025. Buildings inflation will be lower, however, at 2% for 2023, and 3% for 2024 and 2025.
Many in the sector will therefore have been relieved to hear Jeremy Hunt refuse to cut planned infrastructure spending levels for the foreseeable future late last year.
However, this means public spending will not rise with inflation, so the industry could see potential work and projects diminish.
No more cheap finance
Just as construction businesses need investment to cope with higher costs and kickstart lucrative projects, the era of low finance costs has come to an end.
As of writing, the current bank rate is 3.5% and is forecasted to peak between 4.5% and 5%. That might not sound too harsh, but when you compare it to the low of 0.1% in December 2021, you realise how relatively expensive finance is becoming.
Furthermore, the bank rate is the rate of interest the Bank of England charges commercial banks to borrow money – it’s likely the amount of interest they charge on things like business loans will be higher than the bank rate.
Skills shortages
A labour shortage hurt the construction industry in 2022 and is likely to last throughout 2023 and beyond, damaging the output potential of many firms.
The main reason for this is an aging population that is going into retirement, so the need to attract and retain young people is as important as ever.
Brexit is likely to have exacerbated the problem, as many construction firms previously benefited from the free movement of EU workers into the UK.
Environmental building regulations
As you’ll be well aware, a significant update to building regulations is now in force, which will have a marked impact on builders, extenders, and renovators.
First announced in December 2021 along with £6.6 million Government investment, the changes aim to reduce the carbon emissions of all new homes by 30% compared to previous standards.
However, the old regulations may apply to certain projects depending on how far along you are with them.
The uplift to Building Regulations Part L includes updated insulation requirements. Builders will have to conduct on-site audits to prove design details have been constructed, using photographs as evidence. For existing homes, minimum new fabric efficiency standards will now apply.
There are also two new building regulations to stay on top of: parts O and S, which cover overheating and electric vehicle charging respectively.
A grace period for the additional rules will be in place until June 2023 which means that if your project had building regulations approved before 15 June 2022, then the old standards still apply.
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