MACRO ECONOMIC CONDITIONS
Key data
GDP forecasts for 2024:
+1.10%
(OBR)
+1.10%
(OECD)
+1.10%
(IMF)
CPI forecasts for 2024:
+2.50%
(OBR)
+2.70%
(OECD)
+2.60%
(IMF)
Unemployment forecasts for 2024:
4.20%
(OBR)
4.30%
(OECD)
4.20%
(IMF)
Modest growth forecast as UK economy remains in the balance
The consensus view of the IMF, OECD and OBR is a forecast of modest growth of around 1% for GDP this whole year, with 1.5% to 2.0% for 2025. The preliminary OECD outlook document published in December 2024 highlights the contribution of the government's post-budget spending expansion to 2025 GDP, but also identifies a tapering in 2026 as that expansion diminishes.
The Chancellor’s spending review, due to be published in late spring next year, is a key factor. Alongside this, public debt is expected to remain over 100% of GDP, ensuring a focus on productivity improvement and skills building for the future workforce. While CPI has stabilised somewhat at or around the 2% target, the long-awaited reductions in interest rates are still to transpire.
As a result, the balance seems delicate, with government spending to drive consumption and investment, but with funding coming partly from increased National Insurance contributions, in themselves a tax on employment.
Given the ongoing low levels of unemployment and skills shortages in many areas, stimulation of the economy treads a fine line between much-needed growth and inflationary effects. Further external economic shocks could call the balance into question, as alluded to above.
CONSTRUCTION PIPELINE PROSPECTS
Key data
New construction work done volume:
-6.17%
full year to September 2024 (ONS)
Repairs and maintenance work done volume:
+8.50%
full year to September 2024 (ONS)
Work done volume:
+0.31%
full year to September 2024 (ONS)
New orders volume:
-5.54%
full year to September 2024 (ONS)
Housing volumes still down while London continues to dominate
ONS figures for new work volumes in the construction industry show a mixed picture. The outlook has been buoyed by the 11% uplift for the latest half-year, but this is set against a year-on-year fall of 5.5%. That said, it is arguable that the latest half-year is more significant in that it depicts upcoming subcontract work let and to be let.
Within the figures, the housing sector continues to struggle, but new infrastructure work is progressing, with year-long figures up by 5% and the half-year numbers up by over 28%.
The South West fared best in a regional comparison of the last two full years (to September), showing an uplift of almost 17% of its own proportion of all work nationwide. By contrast, the figures for Wales are down at -19%.
Although London’s share fell from 22.6% to just over 20%, the capital remains comfortably the most significant region for construction work, even though year-on-year figures show falls across the board.
INPUT COSTS
Key data
Input costs forecast for 2024:
+2.89%
full year 2024 (BCIS)
Input costs forecast for 2025:
+3.22%
full year 2025 (BCIS)
Build costs stay on upward curve despite falls in materials prices
The BCIS General Building Cost Index currently shows forecast cost figures uplifting by just under 2.9% this year, with 3.2% to come next year. These are a far cry from the near 9% figures of 2022, but still outstrip the 2024 BCIS tender price uplift figure of 2.2%. This suggests increasing pressure on margins as contractors move to refill order books.
Within the overall figures for materials prices, according to the Department for Business and Trade, there are clear indications of falls in some producer price levels, in particular for steel and timber products. Although, the overall fall for total materials prices in the latest year to October is less than 1%. For fabricated structural steel, the fall is recorded as being almost 7.5%, which obviously bears proportionately more heavily on steel-framed building solutions.
Looking ahead, fuel cost changes may again feed into this equation, as will undoubtedly the impact of increasing infrastructure spend incorporating large volumes of reinforced concrete and fabricated steel sections.
TENDER PRICE FORECAST
Key data
RLB Weighted Average TPI 2024:
+3.03%
full year 2024 (RLB)
BCIS Tender Price Index 2024:
+2.23%
full year 2024 (BCIS)
No expectation of a price breakout even as input costs keep rising
The RLB weighted average of tender price uplifts, weighted by regional new orders volumes from ONS data, shows a very slight firming of tender price movements at a national level, which is reflective of recent workload uplift and expectations of upcoming spend from the public sector.
But it should be noted that although these changes are in the upward direction, they are only very slight and as such do not represent any great expectation of a significant price breakout, even though input costs continue to increase at a slightly higher rate overall next year.
One significant effect could be the upcoming changes to National Insurance contributions, which will affect labour costs across the board. BCIS is already noting that the long-term average uplift of 2.5% in labour costs will not be attained again until 2027, with this year’s steadying to 5%, likely followed next year with a further 6.5%.
This labour cost increase is further exacerbated by the fact of the structure of the industry having changed, as the emphasis since mid-2020 has moved more toward repair and maintenance and away from new work. This is not an insignificant change as maintenance work now accounts for, on a rolling 12-month average basis, 43.5% of the total volume as against 34.5% in mid-2020.
This effect is already baked in to costs, but will continue to be an issue in light of ongoing trades and labour shortages. To what extent the cost imposts are reflected in tender prices is dependent upon contractors’ own situations in respect of their existing and upcoming workload.
BCIS published figures for 2024 are slightly lower than are RLB’s for the national overview this year, but correspondingly larger next year, before coalescing on very similar numbers from 2026 onwards.
As building cost expectations are of ‘general stability’, provided there are no market shocks, increased workload availability could, of course, upend tender price stability. It remains to be seen whether the industry, regionally and nationally, will be able to cope with any surge of workload over the next couple of years.
RLB Tender Price Index uplifts published in CMI Q4 2024 vs published in CMI Q3 2024
The chart above shows an average of RLB's regional tender price forecasts for the respective years, weighted by regional new orders volumes of workload for the year to November 2024 (ONS).
