The UK construction sector faces challenges due to increased mortgage rates, impacting housing demand and output.
- Forecasts indicate a 2.9% decline in total construction output for the year, with recovery anticipated in 2025.
- Private housing new-builds and the RMI sector are particularly affected by the mortgage rate rise.
- Industrial and major infrastructure projects maintain robust activity despite broader market downturns.
- Concerns grow over the Building Safety Act’s potential to delay large construction projects.
In light of rising mortgage rates, the UK construction sector is experiencing a downturn, with total output expected to fall by 2.9% this year. This forecast represents a more negative outlook compared to the previous prediction of a 2.2% decline, primarily due to stalling recovery in both the private housing new-builds and the repair, maintenance, and improvement (RMI) sector.
The Construction Products Association (CPA) highlights the slowdown in housing market demand and sentiment as significant factors influencing this projection. Initially, there was optimism for recovery due to reduced mortgage rates at the end of the last year, but this optimism was stunted by rate hikes in the spring.
A substantial contraction of 6% in the RMI sector is expected for 2024. However, a gradual recovery is predicted, with a 2% rise in 2025 and a further 4% increase by 2026. The CPA notes that a “significant, sustained recovery” is expected only when real wage growth, reductions in interest and mortgage rates, and economic and political stability, benefit homebuyers and homeowners.
Despite challenges in the residential sector, industrial, commercial refurbishment, fit-out projects, and major infrastructure projects like the Hinkley Point C nuclear power station and HS2 high-speed rail continue to show strong performance. The industrial sector is predicted to remain stable this year, with growth projected at 1.7% in 2025 and 3.9% subsequently, particularly due to advances in the energy generation and transmission sectors.
The commercial sector is anticipated to retract by 3% this year, followed by an additional 1% decline next year, with recovery projections set for 2026. CPA’s analysis points to uncertainty regarding the UK’s economic recovery strength as a factor holding back large commercial projects.
Additional concerns in the industry revolve around the Building Safety Act, which could potentially delay the delivery of substantial construction projects. Increased scrutiny and additional administrative requirements create uncertainty about roles and responsibilities, which is causing hindrances in project timelines. Nevertheless, post-Grenfell cladding-remediation work is expected to continue offering long-term activity opportunities in the sector.
Despite current challenges, the construction sector’s long-term outlook remains positive, contingent on economic recovery and policy stability.
