The UK construction market is continuing to tread water, with further delays to Brexit making a post-deal ‘bounce’ now increasingly unlikely, warns Arcadis. The depressing prognosis comes via Arcadis’ latest Spring Market View, in which the consultancy has held its short-term inflation forecast at just 2-3% to 2021, with many clients opting to take a ‘wait-and-see’ approach and sit-out the current political turmoil. 

The Arcadis quarterly Market View provides a comprehensive analysis of the UK construction market. It looks at each sector and region to deliver a tender price forecast to inform clients about what is going on in UK construction, helping to inform financial decision making for projects and programmes.

While growth in construction output was flat in 2018, activity remains close to record levels. However, ongoing questions around political leadership and a potential election are affecting investment decisions, with business planning impacted by uncertainty and expected to extend well into the last quarter of the year.  

Delays in converting pipeline into turnover are adding competitive pressure to the market, although the trend is highly sector specific. Markets such as data centres are particularly busy, while others including offices, industrial and schools are on a downward curve. While there is enough competition to put a partial brake on input cost inflation in the short to medium term, an anticipation of tighter labour markets from 2022-23 means costs are predicted to rise by 1% per annum, reaching 4% by 2022.  

Despite increased levels of uncertainty, Brexit appears to have been  the trigger for further employment growth across the UK economy, with businesses preferring to hire people rather than invest in plant and equipment to deliver long-term productivity gains.  As a result of skills shortages, earnings growth for construction employees has averaged 4.2% over the past year, up from 2.1% in 2017. Earnings inflation for the self-employed, who make up 41% of the entire construction workforce, could be higher still.  

Overall in the UK, nearly 100,000 jobs were created in the three months to March 2019. Given growing concern as to whether EU migrants will continue to want to work in the UK, combined with the accelerated retirement of older workers from 2024 onwards, labour pressures are anticipated to intensify. 

Simon Rawlinson, head of strategic research and insight at Arcadis, said: “UK construction has a long-established skills and training problem. With skilled EU labour making up 8-10% of the workforce, specialist contractors and employers have been shielded from the necessity of developing and maintaining the skills of their workforce.  However, with the prospect of post-Brexit restrictions on migration, we’re now facing a real crisis in terms of future labour capacity. 

“The supply chain will need to look at other options for increasing productivity. Off-site manufacturing currently delivers around 8% of industry output, but with the introduction of a government mandate, this could increase significantly. Adopting new technologies to improve processes will help to eliminate waste and duplication, while a renewed focus on training and re-training – particularly with the introduction of T-levels in 2020 – will further help to support a much-needed flow of talent.”

Click here to download a copy of the Arcadis Spring Market View.