How to look for and find confidence in UK construction

It is considered good practice to start the new year in a “reset” mode: move on from any negatives that may have dragged us down in the previous 12 months and look ahead with as much positivity as we can muster for what lies ahead.

So in the spirit of finding some positive news for the construction sector I would point to our coverage of the announced sale of Lendlease to private equity firm Atlas Holdings. Clearly, this “good” news story cannot wipe out all of the pain many contractors felt in 2024, but there is no doubt that the story breaking on new year’s day was a fillip to the sector.

Here are just a few of the reasons why insiders and onlookers alike will have felt a sense of relief:

1. Continued competition in the market: the imminent sale to Atlas means that the UK gets to keep a key player in the main contractor market. When it comes to bidding for commercial projects in London the prospect of Lendlease exiting led to a perception that only Mace and Multiplex would be in contention for such jobs. The industry – that is, clients, rivals, supply chain partners – all need Lendlease to remain a major player for the sake of competition as well as capacity.

2. Atlas’ intention to grow the business: Building understands it is aiming to boost revenue from its current £500m to anything up to £800m. 

3. The return of the Bovis name: Building found out last week that the Bovis name, which has a 150-year history, will return after the deal is complete, bringing back a sense of tradition and pride.

4. The influence of private equity on the sector: commentators have suggested Atlas will bring a focus on returns and risk transfer that is much needed among contractors.

5. Investing for the long term: indications are that Atlas views its purchase of Lendlease as a long-term commitment, and is not looking to sell the business quickly. This would provide stability for the business and ensure it keeps hold of its employees.

6. Management continuity: David Cadiot is expected to continue to lead the business, signalling a smooth transition and, again, ensuring stability.

All in all, it really does feel like a vote of confidence in UK contracting – and let’s face it, business confidence elsewhere is pretty thin on the ground. In a swipe at the chancellor’s £40bn tax-raising budget, CBI chair Rupert Soames said this week that measures such as the national insurance hike had “bruised” British businesses. There are concerns that the government’s employment rights bill could make the situation worse, in Soames’ view leading to an “ugly rush” of job losses.

And this is all against the backdrop of recent turmoil in the bonds market, which is driving up the cost of government borrowing (see how difficult it is to stay positive?). This will only add to concerns about the pace of interest rate reductions in 2025. As Aecom points out in this month’s market forecast, slower rate reductions lead to downward revisions in construction output forecasts.

It would be wishful thinking to believe AI has all the solutions, or can reboot the economy overnight. Still, a government focus on this area will be welcomed by many

We know the logic all too well: higher borrowing costs deter business investment, and that can have a knock-on effect on output.

Of course, it is not just interest rates - construction growth is affected by a whole cocktail of macroeconomic policies: government spending, tax changes and supply side reforms in areas such as planning and skills. All of these levers can play an important part in driving activity – and certainly the government is hoping its reforms to the planning system will do a lot of the heavy lifting when it comes to delivering the 1.5 million new homes it has promised.

To add into the mix, this week the prime minister announced a plan to “turbocharge” artificial intelligence in this country and to ultimately achieve the ambitious aim of being an “AI superpower”.

It would be wishful thinking to believe AI has all the solutions, or can reboot the economy overnight. Still, a government focus on this area will be welcomed by many in construction, not least the proposals to change planning rules to build more AI infrastructure across the country.

Apparently the government will have more details in the spring on how AI “growth zones” for data centre developments will work, but what we do know for sure is they will increase demand on electricity. Here again construction firms will be crucial, helping to develop innovative energy solutions such as small modular reactors and renewable energy projects (for those who still need convincing of AI’s transformative powers, I recommend reading Diego Padilla-Philipps’ AI predictions for 2025).

In particular, the newly announced AI Energy Council is a good idea, though ministers would do well to invite relevant experts in the construction industry to the group to provide valuable insights into project delivery.

Rapid advancement of AI has its detractors, perhaps one of the biggest concerns being the security – or rather insecurity – of our data. Nevertheless for a UK economy that is desperately searching for ways to boost productivity, construction’s contribution to the AI revolution could be extremely valuable to us all.

Chloë McCulloch is the editor of Building