The Construction Products Association (CPA) has predicted that construction output will fall by 3.9% in 2023 – a sharp downward revision from the -0.4% fall that the association predicted in the lower scenario of its summer forecasts. This is mainly due to the impact of a wider economic recession.
The CPA’s prediction takes into account decreasing wages and potential further rises in interest rates, which CPA analysts predict will likely lead to further falls in consumer spending decisions. Added to this, wider economic uncertainty has led the CPA’s analysts to warn of decreased demand for private housing, new builds and private housing repair, maintenance and improvement (RM&I).
Professor Noble Francis, the CPA’s economics director, said: “With the UK economy expected to fall into recession, the construction industry will also fall into a recession. It is worth keeping in mind that activity in the industry currently remains at a historically high level, but it will not be immune to the effects of falling real wages and spending at the same time as the cost of construction continues to rise at double-digit rates.
“The largest effects will unsurprisingly be on private housing and private housing RM&I, given that they are reliant on households’ willingness and ability to spend. Activity in both sectors will fall significantly, albeit from a high point.
“Major clients’ willingness to invest in new commercial developments will also be tested, given concern over the UK economy and rising construction costs. Furthermore, infrastructure will be adversely affected by central government and local authority spending constraints as well as increased pressure for austerity despite continual government announcements and reannouncements of more and more infrastructure.”
After a record level of £24bn last year, private housing RM&I output, the third largest construction sector, has been decreasing since March 2022. With a drop in real wages and sharp increases in mortgage payments for many households, there is likely to be a further fall in smaller, discretionary improvements and renovation spending, according to the CPA. Output in this sector is expected to decline by 4.0% in 2022 and 9.0% in 2023, before marginal growth of 1.0% in 2024.
The CPA represents and champions construction product manufacturers and suppliers. CPA members can access the association’s full range of economic reports free of charge. Non members can make one-off purchases or subscribe.
