Construction output returns to growth, but challenges remain

Despite heighted uncertainty ahead of the General Election, the forecasts for 2020 are unchanged in Mace’s latest tender cost update, for Q4 2019, predicting growth of 1.5% both in London and nationally.

While material price inflation has eased this year, annual growth in regular earnings for construction stand at 5.6%, the second fastest growth rate in over a decade.

Due to ongoing uncertainty, construction output is marginally lower than six months ago. Falling house prices and investment reluctance are the factors that have led to a large reduction in new construction orders.

This uncertainty has particularly impacted new orders in the commercial sector, which have almost halved in the second quarter of 2019, with business still struggling to understand and predict a Brexit outcome and what it would entail.

Further signs of pressure come from a potential turn in the labour market, with a weakening economy leading to higher unemployment.

With a third quarter growth of just 0.6% for construction output, Mace’s tender cost update warns of further market headwinds in 2020.

Steven Mason, Managing Director for Cost Consultancy at Mace, said:

“The construction market continues to be remarkably resilient despite the global economic and UK political uncertainty. Whilst the slowdown in material price inflation offers the industry some level of respite, this is being off-set by the sustained growth in labour costs and the subsequent pressure on supply chain margins.

“Against the backdrop of this mix of contrasting and often conflicting economic and market performance data, we expect only a limited increase in tender prices next year and have maintained our forecasts with our predictions in the last quarter.”