Around the globe
UK
General economic overview
The UK economy grew at a record 7.3 percent in 2021 after a decline of 9.3 percent in GDP in 2020. However, 2022 is expected to see a slowdown to 4 percent growth (UK Treasury consensus forecast). Inflation was at 9 percent in May, the highest level in 40 years, and is being driven by increased fuel costs, and disruption to the supply chain caused by the pandemic, Brexit and the war in Ukraine.
Average wage growth was 4.8 percent for the year to January 2022, indicating a fall in real wage incomes. This is likely to hold back household consumption during 2022, unless wages increase significantly. Until recently, wage increases were mainly occurring where workers changed jobs, especially to the sectors with labour shortages, but more recently, demands for higher wages are emerging in the wage settlement process. Skills shortages in the UK remain a problem, with the number of job vacancies increasing from 765,000 to 1.3 million in the year to the three rolling months to May 2022.
Construction sector performance
Overall, construction grew by a record 12.7 percent in the 12 months to December 2021, but this is relative to the exceptional fall in construction caused by the pandemic in 2020. In February, construction finally exceeded pre-pandemic levels by around £35m.
Repair and maintenance works are £225m above pre-pandemic levels but new work is still £190m below pre-pandemic levels, indicating that new work is still in catch-up mode. In a promising sign, however, new orders reached £13.3bn by the end of 2021. This was the highest level since 2017, boosted at the time by the large value order for High Speed 2 (HS2) rail. Infrastructure and new housing are the only ‘new work’ sectors where output is now above pre-pandemic levels.
Bottlenecks in the supply chain appear to be easing slightly. However, supply chain problems are magnified by Brexit because many businesses are still working through the increased paperwork and new logistics for doing business with the EU. This is still curbing the flow of goods. Cost reimbursable contracts are being seen more often, as contractors remain nervous of further cost increases. Currently roof tiles, bricks and blocks, plastics and paints and electrical products are the items experiencing longest lead times. Timber, steel and plasterboard were in short supply in early 2021, but the situation has recently improved.
Overall, according to the Office of National Statistics, construction costs increased by 6.6 percent for new work in the year to December 2021, with new residential construction leading the pack at 9.9 percent. This may be enough to prevent some larger housing construction schemes with marginal returns from proceeding at all. Higher energy prices, adding to transport costs and higher materials prices with longer lead times are still major challenges for contractors.
Top-performing sectors
Warehouses and distribution centres were a major contributor to new orders in the private sector, with growth of 144 percent in 2021 driven by changing consumer shopping habits.
Defence and defence manufacturing are also buoyant sectors. Infrastructure was another major contributor to growth with a record 30.4 percent increase for the 2021 year. HS2, motorway improvements and green-energy developments were major contributors.
Private commercial work saw an annual decline of 6.8 percent continuing a trend started in 2020, when work fell by 22 percent. Nevertheless, several large hotel projects are starting up. As of March 2022, there were 431 hotel construction projects across the UK representing 61,000 new rooms. In addition, many global multinationals are undertaking significant fit-outs and refurbishments in the London office market.
Progress of the environmental agenda
With the UK being highly dependent on oil and gas for its energy needs, the war in Ukraine is especially challenging. However, the dual concerns of higher energy costs and energy security is driving organisations to seek ways to accelerate their renewables agenda. This is likely to act as a catalyst for new clean energy projects.
In the Midlands, the production of electric cars continues to increase with 224,011 hybrid and electric vehicles manufactured in 2021 (Society of Motor Manufacturers and Traders). In 2021, Envision announced the construction of a £450m battery gigafactory in the North East, as part of a £1bn partnership with Nissan UK and Sunderland City Council. The UK plans to stop the sale of diesel and gasoline cars by 2030.
The UK Prime Minister has a green “ten-point plan” which includes increasing offshore wind generation, hydrogen, nuclear, electric vehicles, public transport and walking, jet zero and greener maritime, homes and public buildings, carbon capture, natural environment and finance for innovation.
Future outlook
The future looks cautiously optimistic. There are numerous speedbumps ahead, some of which are unique to the UK, such as working out how to trade with the EU in a post-Brexit world. Higher interest rates, higher taxes, an increase in national insurance to bolster the national health system, and the prospect of an inflation wage spiral indicate that continued growth may not be sustainable.
Gradually, supply bottlenecks should ease and some of the factors driving inflation should abate. Meanwhile, the UK is undergoing a fall in real disposable incomes which threatens to slow growth later in 2022. The government will need to tread carefully in its policy settings and budget to ensure that growth is not held back further.
Current tendering condition
Future market outlook
“Bottlenecks in the supply chain appear to be easing slightly. However, supply chain problems are magnified by Brexit because many businesses are still working through the increased paperwork and new logistics for doing business with the EU.”
Patricia Moore, UK Managing Director
Construction market
metrics
Top three regional
construction challenges
of respondents said that rising costs of construction had a significant or high impact on the delivery of construction projects
of respondents said skilled labour shortages had a significant or high impact on the delivery of construction projects
of respondents said that excessive lead times had a significant or high impact on the delivery of construction projects
Regional construction
cost performance
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