Construction is a vital sector to sustain the UK’s economic growth. As of the fourth quarter of 2023, there were approximately 2.12 million people employed in the construction sector in the UK (Statista.com).
The sector has been hit by a perfect storm, with sustained inflation increasing material and labour costs, high interest costs, skills shortages, supply chain issues and legislation (such as the Building Safety Act) all negatively impacting project progression. It is not a surprise that construction has seen the highest number of corporate insolvencies over the last two years out of all sectors.
We have undertaken a survey of more than 500 senior decision makers within the industry. The results were broad and revealed a geographical spread of responses reflecting the challenging conditions they are operating in and the steps they are taking to build their resilience.
My observations from the research, and from speaking with others within this significant sector, is that there will be persistent challenges over the next twelve months, together with political uncertainty which make the landscape difficult to navigate.
Financing in the industry is becoming harder to source, driven by higher cost of capital and lower risk appetite from lenders. This is exacerbated by significant losses incurred by surety markets, increasing cost and reducing availability of bonds and guarantees. Many insurers offering trade credit facilities are reducing or withdrawing limits following significant failures in the industry.
Contract disputes arising from fixed price agreements continue to play a part and the post Grenfell effect will continue to lead to disputes and delays for contractors as completed developments need to be adjusted to meet new regulations.
However, there are green shoots, and with inflation easing, potential for interest rate reductions and the need for infrastructure and housing development, supply and demand will both grow.
With 36% of those businesses surveyed having concerns about seeing through 2025, it will not be plain sailing, but those businesses that survive the next twelve months, managing compliance of new regulations and having already weathered the roughest part of the storm, will be on the road to recovery.
You can read our latest report here.
Our findings show a sector that is proactively working to manage the impact of current and future risk, and fuel new growth. This proactivity – in action, but also in planning – will be key to their future success.
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