What does 2024 hold for the UK construction industry?

Last year, 2023, was a difficult one for the UK construction industry. Economic uncertainty amid low growth and persistent inflation, along with labour shortages and supply chain issues, made 2023 a particularly challenging year for the sector.

But there are hopes that 2024 will be a more favourable year for UK construction. Analysts expect to see interest rates decline this year – though the extent of base rate cuts remains uncertain – and mortgage rates are substantially down compared to the surge of late 2022, and it is hoped that this will spur new housing construction.

But the construction industry faces continuing challenges as 2024 progresses. In this post, we’ll look closely at what the remainder of the year is likely to hold for UK construction and assess its prospects over the coming months – including key challenges and how the industry might address them.

Output expected to rebound
Labour shortages continue
Falling inflation and base rate cuts
Investment in new tech

Output expected to rebound

The UK construction sector is expected to see some output growth over the next two years. The Glenigan Construction Industry Forecast 2024-25, for example, anticipates that the industry will experience growth of 8% in 2024, followed by 7% growth in 2025.

This follows a difficult end to 2023, as revealed by official figures from the Office for National Statistics (ONS). According to the ONS, construction output was down by 5% during the fourth quarter of last year, posting a monthly decline of 1.1% in December as the wider UK economy entered into a recession.

However, while the S&P Global UK Construction PMI recorded a decline in construction output in December 2023, it noted that this was the slowest decline in fourth months – indicating that the downturn is easing as material costs begin to stabilise and employment figures in the industry rise.

Labour shortages continue

The construction industry has been struggling with labour shortages over the last few years. In particular, the UK’s departure from the European Union has made it much more difficult for the British construction sector to recruit workers from the continent.

Last year, the UK government relaxed immigration and visa rules for a number of construction-related occupations – including bricklayers, slaters, joiners and plasterers – by adding these roles to its Shortage Occupation List in an attempt to ease the industry’s recruitment problems. But still, this pattern of labour shortages is likely to persist throughout 2024.

As well as tighter restrictions on overseas recruitment, UK construction has an ageing workforce, with many skilled older workers approaching retirement and a deficit of younger recruits to replace them. The industry will therefore need to address this as a priority, including through boosting the provision of apprenticeships and similar schemes to attract young people into construction.

Falling inflation and base rate cuts

Although inflation has come down markedly in recent months, it remains double the Bank of England’s target rate of 2%. The BoE is expected to begin reducing its base rate – which currently stands at 5.25% – later in the year, though it remains unclear exactly how far it will fall.

This has weighed somewhat on UK house prices, which the ONS reports were down by 1.4% year-on-year in December 2023. Mortgage rates have eased from their peak after the Liz Truss ‘mini-budget’ of 2022, however, breathing some life back into the UK’s fairly static housing market.

In addition, lower interest rates should also reduce borrowing costs for UK construction businesses and falling inflation should ease some of the cost pressures facing the industry with regard to supplies and labour. This should serve to stimulate activity, coupled with strong, pent-up demand for housing as buyers previously deterred by high mortgage rates return to the market.

Investment in new tech

While the outlook for UK construction in 2024 is brighter than it was last year, the industry is still grappling with low profit margins and sluggish productivity. This underlines the need to invest in new technology to enhance productivity as well as giving businesses in the sector greater control over their finances, and to ensure that their resources are deployed as efficiently as possible.

IFS Cloud solutions, delivered by Muzulu, enable construction companies to make more effective use of their assets in the field. IFS Cloud’s asset lifecycle management capabilities provide detailed, real-time information about how equipment is being used on projects, boosting productivity and greatly simplifying the maintenance of assets.

Crucially, this helps to reduce the risk of downtime and disruption – and what this ultimately means is that more projects are delivered on time and on budget. It can also extend the lifespan of assets, so that they function effectively for longer and provide a better return on investment.

Muzulu’s industry-leading IFS Cloud consultancy can empower your construction business to simplify process, build resilience and face the future with real confidence. Book a call with our expert team today to find out more about what we can do for you.