Construction slowdown threatens UK growth plans

UK construction projects are slowing as the impact of higher costs, tighter credit and a lack of staff and materials starts to bite, undermining government efforts to grow the economy, according to two new reports.

Research published on Thursday by professional body the Royal Institution of Chartered Surveyors and construction data provider Glenigan highlighted the stultifying effect of the economic downturn on construction, putting at risk the delivery of new homes, offices and infrastructure projects.

The RICS survey of more than 1,600 members operating in the UK suggested the appetite of developers to take on new projects was diminishing fast.

It captured an increasingly glum mood among construction professionals, who reported that a rebound in their workloads following the pandemic was slowing sharply.

“The deteriorating macro environment is clearly taking a toll on the construction industry, with access to credit now being cited as a key challenge for businesses alongside the more familiar issues around building materials and labour,” said Simon Rubinsohn, chief economist at RICS.

He said development activity had risen quickly after building sites reopened in the summer of 2020, following a brief closure owing to the onset of the Covid-19 pandemic, but that it was likely to flatline in the near term.

Rubinsohn added that government intervention to reduce borrowing costs could help revive the sector. “The thoughts of the chancellor on November 17 may provide some clues as to whether this trend [towards flatlining] is likely to be sustained over the longer term.”

Separate research by Glenigan showed cracks had already started to appear in the sector.

The data provider found that the value of projects securing detailed planning consent in the first nine months of this year fell by 5 per cent compared with the same period last year. It added that activity was likely to contract further during the next two years.

With two-fifths of UK construction driven by the public sector, Glenigan’s economics director Allan Wilén said government pledges to fund infrastructure and encourage spending on health and education facilities might provide a backstop.

But in view of rising costs and falling economic confidence, Wilén said the development of new homes, offices and warehouses was set to slow. That, he added, would be a drag on an already ailing economy because “construction is the engine for longer-term growth”.

The downturn is already hitting companies involved in development. The share prices of UK housebuilders have plunged this year, with the sector down roughly 50 per cent since the start of this year on fears of a decline in new home sales and falling prices.

Housebuilding accounts for about two-thirds of national demand for bricks, and expectations of slower construction rates has prompted analysts to downgrade companies that make bricks and other building materials.

Investment bank Jefferies this week lowered its price targets for two UK brickmakers, Forterra and Ibstock. Shares in both companies have fallen more than 25 per cent from August peaks.

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