Energy Sapping

Despite a string of positive results from contractors, the current market cycle has now reached its peak and the first signs of a slowdown are appearing as wider economic gloom and unprecedented energy price rises make their impact felt.

So far this year, amid a background of inflationary pressures and dire economic forecasts from the Bank of England, the construction industry has maintained positive results as the strong rebound from the disruption of the Covid-19 pandemic has continued. Output statistics showed construction volumes hit an historic high in May 2022 and Q2 was the busiest quarter ever recorded.

However signs of strain are starting to show. The overall picture of inflationary pressure shows no signs of easing, with material price increases continuing to be the main driver. Whilst there is evidence of price stability emerging, this is threatened by spiralling energy costs which, even with government support to keep prices at current levels, are likely to impact the costs of basic material production and their availability.

UK Autumn Market View:
September 2022

This means the high inflation of the first half of 2022 is likely to remain baked-in. The cost-of living crisis is also set to sustain upward pressure on labour costs which are likely to see catch-up pay demands in 2023 and beyond. These strains are starting to show their face in reporting, with total construction orders falling by 10.45% in Q2 on the previous three months, the largest quarterly fall since Q4 2020.

As always, it can take the construction sector a while to feel the impact of a wider economic downturn, but there’s hope that, with the slowdown starting from a highpoint, competitive pressure will take the edge off future price rises and this will be a shallow but prolonged dip rather than a blow-out. But with a high degree of uncertainty around energy costs and availability, there is still a risk the crisis could escalate further and the slowdown could develop into a hard landing.

UK Summer Market View: September 2021

UK Construction Market View

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Simon Rawlinson

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Simon Rawlinson, Head of Strategic Research and Insight

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Agnieszka Krzyzaniak

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Agnieszka Krzyzaniak, Market Intelligence Lead, Construction

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