Glenigan says combination of Ukraine war, inflation and rising interest rates will blunt output in 2023

Starts on site are expected to begin recovering next year after sinking by nearly one fifth in 2023, according to a new report by information provider Glenigan.

The firm said in its industry forecast for 2023-2025 that starts this year will slump 18% before recovering 12% next year and 3% the year after to level up the balance of this year’s fall.

Construction starts have fallen sharply during the first four months of this year, as the fallout from last autumn’s mini-Budget and a weak outlook continue to dent investor and consumer confidence.

hs2 brum

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Major schemes like work on the HS2 site in the middle of Birmingham will help civil engineering recover next year

Ongoing conflict in Eastern Europe, materials shortages and cost inflation and rising interest rates are expected to delay work moving to site for the remainder of the year, Glenigan said.

Glenigan’s economic director Allan Wilen said: “The pattern of UK construction activity is being reshaped by economic slowdown and structural changes, while new regulations are transforming how projects are delivered.

“We are still in a state of extreme uncertainty, and the industry is set for a challenging period over the coming year, but there’s light at the end of the tunnel. Structural changes are expected to create new opportunities in logistics, office and retail refurbishment and fit out, and the repurposing of redundant commercial premises.”

Public sector construction is set to be a relative bright spot during 2023, as government departmental capital programmes are boosted by underspend rolling over into the current financial year with schools and hospitals due to undergo a major building programme.

But Glenigan warned that disruption to project starts is likely in the run-up to the next general election and beyond as a new administration looks to review public sector investment programmes currently in the works.

It said industrial projects will return to growth next year after treading water this while major projects, such as HS2 and Hinkley Point C, will help see growth recover in civils next year after falling 9% this year.

Office starts have rebounded since 2021, after the covid-19 pandemic spurred changes to working practices with the sector predicted to benefit from a rise in refurbishment and extension projects.

Furthermore, demand for premium ‘green’ office space, is set to support a rise in new build starts during the second half of the forecast period.

These opportunities for the sector are predicted to drive growth over the next two years, 19% in 2024, and 11% in 2025.

But retail is set to fall 25% this year in the face of lower consumer spending although a recovery, Glenigan said, is on the way in 2024 and the following year. Hospitality will also see a slowdown this year ahead of growth over the next couple of years, it added.