Reason for cautious optimism in 2024 as construction industry awaits clarity on planning reforms

Kelly Boorman, national head of construction and partner at RSM UK, comments: ‘The overall picture for UK construction in 2024 will be a year of slow recovery, with the industry seeing some challenges in the supply chain relating to raising funds. There is reason for some cautious optimism though, as interest rates seem to have peaked, so businesses will start to see funding becoming more readily available from Q3 2024.

‘However, interest rates are likely to remain at 5.25% in the first half of the year, only moving to 4.5% by the end of 2024, which, coupled with acute insolvency pressure, means stabilisation will only return in the second half of the year. 2023 has seen a major slowdown in the pipeline of work alongside a fall in new work. But businesses are still optimistic as there are contracts to go for, stabilisation of material prices has stabilised, access to labour has improved, and the supply chain is producing materials more quickly, all delivering better margins.

‘The pipeline of work has also been squeezed this year due to cuts on infrastructure spend, and with political change potentially on the horizon in 2024, industry remains uncertain on allocated budget, especially in regions impacted by the scrapping of HS2. But, with government announcing its focus on accelerated planning reform and investment zones in the Autumn Statement, there will hopefully be mobilisation of projects which enhance investment and collaboration. This will also help combat sector insolvency, as contractors and large groups look at how they can protect their supply chain – stepping in to support businesses with distressed assets.’

She added: ‘One subsector likely to make a comeback in 2024 is housing after the huge slowdown this year due to interest rates and the cost-of-living crisis seeing people put their house move on hold. This has had a knock-on impact on affordable housing and first-time buyers especially, although once infrastructure projects pick up and fixed-term mortgages become more accessible, this will stimulate the housing market.

‘Moving into the new year, industry will be hoping for clear direction on how government money will be spent to fund, and deliver better, infrastructure projects with enhanced collaboration and procurement processes. While the Autumn Statement brought welcome news in terms of planning reform, political agendas on both sides of the coin should be considering this with first-time buyers in mind to build back margins and protect businesses.’