CPA 2024 Spring Forecast for Slow Recovery

THE CONSTRUCTION Products Association (CPA) 2024 Spring forecast anticipates a construction recession this year with a slow recovery to follow.

Output is forecast to fall by 2.2% this year, before a broader economic recovery underpins growth of 2.1% in 2025 and further growth of 3.6% in 2026.

This year saw a weak start following heavy rainfall in the first quarter, and subdued activity in private house building and private housing repair, maintenance and improvement (RMI), after the sharp sector contractions in the second half of last year.

Beneath the headline figures, it is likely to be a year of mixed fortunes for construction firms, with performance highly dependent on which sectors they are operating in.

Private Housing

In private housing – the largest construction sector – mortgage approvals and property transactions have begun rising from the nadir last year.

In this sector, the increasing prospect of interest rate and mortgage rate cuts heading into summer has underpinned increased optimism in recent months. Nevertheless, this is unlikely to translate into a pickup in house building overall this year given that output in the first quarter was significantly lower than a year earlier.

Output is forecast to fall 5.0% in 2024, with stronger UK economic growth, combined with real wage increases and lower mortgage rates driving a return to growth of 5.0% in 2025.

Repair, Maintenance and Improvement

Contractors working in private housing RMI, the second-largest construction sector, also continue to face a subdued environment.

Output is expected to fall by 4.0% in 2024, as continued strength in energy-efficiency retrofit and solar photovoltaic work – bolstered slightly by government programmes – only partially offset a drop in large home improvements spending and a double-digit drop in planning approvals in 2023 that signals a smaller near-term pipeline of projects.

A recovery in line with a broader pickup in macroeconomic conditions is forecast to begin from 2025.

Commercial

For firms operating in the commercial sector, refurbishment and fit-out continue to enjoy strong levels of activity. However, overall commercial sector growth is only expected to turn positive in 2025, when confidence improves enough to proceed with large office towers and leisure/entertainment projects that are currently on pause due to the rise in construction and financing costs.

In infrastructure, major projects such as HS2 and Hinkley Point C are driving the current high levels of activity, with additional uplift from 2025 expected due to offshore wind, National Grid upgrades and airport expansions.

CPA Spring Forecast 2024

Rebecca Larkin, CPA Head of Construction Research

Head of Construction Research for the CPA, Rebecca Larkin, said: “Almost all sectors of construction had a bad start to the year with persistent rainfall delaying work on site, especially outdoor work.

“Whilst we may see a degree of catch-up activity as the weather improves, smaller sites are likely to see work simply pushed back due to capacity constraints.

“Of more concern to the industry’s near-term prospects is the sharp drop-off in activity in its two largest sectors: private housing new build and private housing RMI.

“With both sectors forecast to contract this year, the key question remains how quickly and how effectively expected cuts in interest rates can stimulate the economy and housing market, as well as how quickly they can restore house builder confidence to resume activity and spark homeowners’ appetite for large improvements projects.

“The forecasts anticipate a return to growth of 2.1% in 2025 and further growth of 3.6% in 2026 although clearly, there is greater uncertainty around activity in 2026 given the potential for a new government resulting from a General Election this year. The impact this could have on public sector spending plans and the longer-term delivery of infrastructure and public sector projects present the longer-term opportunities – and risks – for construction.”

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