Construction Industry Trends United Kingdom - 2023

Market Monitor

  • United Kingdom
  • Construction

7th February 2023

Labour shortage and higher wage costs are serious issues

 

UK Construction Sector - Credit Risk Assessment table

 

After growing by more than 5% in 2022, we expect British construction output to level off this year, with a 1.5% contraction in the residential construction subsector. Demand in this segment suffers from falling real disposable incomes, rising interest rates leading to higher mortgage interest rates, and the economic contraction in 2023 (forecast -0.7% year-on-year). We expect house prices to decline by more than 10% in 2023 and 2024. However, there are major infrastructure projects still going ahead (HS2, Hinkley Point and the Thames Tideway project), which support the sector´s performance. Additionally, ongoing Renovation Maintenance Improvement (RMI) work sustains the construction materials industry.

UK Construction Sector - Output table

Construction output UK

All major building segments have been hit by increased energy and construction material costs, which raises the question of how far builders are able to pass on higher input prices to their customers. Since the pandemic, all contracts have been generally  negotiated with price escalation clauses. However, the issue of legacy contracts still exists for many businesses.   

Payments in the construction industry take between 75-90 days on average. The number of overdue payments, payment plans, and insolvencies has increased at double digit-rates in H2 of 2022, although from a very low level. Companies´ liquidity is squeezed by increased input charges, with inflation and particularly wage increases putting pressure on their cashflow.

Another issue is the expiry of pandemic-related government support for businesses (during the lockdowns many companies have preserved cash, supported by several government schemes). Now, this financial support has to be repaid to HM Revenue and Customs.

Due to all these factors putting high pressure on the cash situation of businesses, we expect further rising payment delays this year and business failures to increase by about 10%. Given the deteriorated credit management situation of the construction industry, our sector outlook remains “Poor”. In particular, labour availability and wage costs have become serious problems for construction companies, and both Brexit and the pandemic have aggravated this issue. There is a shortage in all specialised building skills, which leads to higher labour expenses, adding to cost pressure for builders in the short and medium-term.

 

 

 

 

Related Documents

Disclaimer

Each publication available on or from our websites, such as, but not limited to webpages, reports, articles, publications, tips and helpful content, trading briefs, infographics, videos (each a “Publication”) is provided for information purposes only and is not intended as a recommendation or advice as to particular transactions, investments or strategies in any way to any reader. Readers must make their own independent decisions, commercial or otherwise, regarding the information provided. While we have made every attempt to ensure that the information contained in any Publication has been obtained from reliable sources, Atradius is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in any Publication is provided ’as is’, with no guarantee of completeness, accuracy, timeliness or of the results obtained from its use, and without warranty of any kind, express or implied. In no event will Atradius, its related partnerships or corporations, or the partners, agents or employees thereof, be liable to you or anyone else for any decision made or action taken in reliance on the information in any Publication, or for any loss of opportunity, loss of profit, loss of production, loss of business or indirect losses, special or similar damages of any kind, even if advised of the possibility of such losses or damages.