Construction left wishing and hoping for investor confidence and government action to get Britain building

Spring may have sprung but the mood in the business community is more gloomy. The latest data out last week from S&P Global showed falling confidence among purchasing managers. The index – which has a 50 no-change threshold – fell steeply to 44.6 from 48.1 in January, with the housing sector dropping for the fifth time in a row to register a dismal score of 39.3.

This is not where construction bosses want to be, and the commentary accompanying the stark figures laid the blame on “delayed decision-making among clients, reflecting squeezed budgets and concerns about the economic outlook”. This chimes with what we are hearing from construction companies.

To be clear, firms may not be desperate yet but they are feeling very cautious about how exactly 2025 will unfold. And that is because their clients are feeling similarly cautious about the state of the world right now – Donald Trump’s trade tariffs, a mode of leverage that former Republican president Ronald Reagan called “stupid”, do not have to directly affect the UK for the knock-on effects to destabilise our economy. As a result, the trend has been for clients to hold off making big investment decisions.

While the Labour government has hailed long-term growth, it has been very light on short-term interventions that would boost workload

As one boss said the other day: “Clients have got very close on some projects but they have stopped short of pressing ‘go’. Meanwhile, we are having to bench people, shuffle people around the business, and you can only do that for so long.”

And that is the point: if work does not start to flow through the pipeline soon, companies – which will be paying the increased national insurance contributions costs from next month – will have to make some difficult decisions. They need the taps turned on as soon as possible so they can get teams deployed on work they thought would be signed off by now.

A really good account of some of the complexities in the market – across public sector and commercial work – came this week from Arcadis in a report with the wry title of Wishing and Hoping, no doubt reflecting how many in the industry feel right now. Arcadis rightly states that construction as a sector needs some help, and characterises the market as being one of low confidence, slow growth and high finance costs. Ultimately, this all means, in Arcadis’s view, that we will not see a recovery until the end of 2025, if we are lucky.

So, what is behind the state we find ourselves in?

First up, the macroeconomic factors in the UK mean that a combination of low growth and inflation have hit confidence. While the Labour government has hailed long-term growth as its ultimate goal, it has been very light on short-term interventions that would boost workload.

Linked to this, government as a client has delayed spending plans, along with major client organisations such as Homes England, Network Rail and National Highways restructuring. Overall, Arcadis says this government’s focus on long-term issues such as reforms to planning (the details of the Planning and Infrastructure Bill this week look promising), investment finance and skills should be welcomed but the harsh reality is that public sector work is not currently filling the gaps left by underperforming private sector markets.

Which brings us to the residential and commercial sectors, where there are some specific challenges. In terms of the office market, investment “remains frozen” while the previous buoyant areas, student accommodation and build to rent, have been hit by viability issues in part due to Building Safety Act processes that are slowing higher-risk buildings “to a trickle”.

Prospects, according to Arcadis, look rosier for two other tiers in the market where significant investment should lead to increased workloads: network infrastructure and regulated utilities as well as mega-projects. The challenge for utilities work may in fact be demand outstripping the capacity of the supply chain to deliver, and for mega-projects the appetite of suppliers to take on project risk.

It is, clearly, a mixed picture but overall there is a worrying downward trend for new orders. As Arcadis points out, the longer view shows that during the whole of 2023 and 2024 orders fell to £70bn a year, a record low since 2011-12. Here’s wishing for some much-needed investor confidence and government action to reverse this trend and get Britain building.

Talking skills

Addressing the construction skills crisis is a big part of driving growth, and last Thursday Building’s Good Employer Guide Live event debated two urgent issues facing the industry: how to attract and retain talent and how to create inclusive workplace cultures.

A call for reform of the apprenticeship levy came loud and clear from the first panel – all agreed the current system is not working. While the government has said reform is on the way, it is clear companies have strong views on what needs to be improved, specifically making sure SMEs have access to the funding and that apprentices emerge from training ready for the jobs market.

Industry leaders were just as resolute in their views on equality, diversity and inclusion programmes,stating their support for efforts to improve representation in construction in the UK despite the backlash happening in the US. It was encouraging to hear this second panel report that they felt UK firms were still committed to greater inclusion, and restating the business case that “diverse teams are better teams”. A sensible stance in less than sensible times.

Chloë McCulloch is the editor of Building