UK Construction Sector Report from Tokio Marine HCC
Summary
- Input price inflation in the sector has been decreasing steeply and most prices for building materials are now falling in y/y terms.
- Sectoral output and other high frequency indicators (such as sand and gravel sales) performed poorly in 2023 and 2024 year to date but the outlook is a bit more encouraging.
- Employment in the sector has remained stable but the number of vacancies has dropped; nominal wage growth is one of the weakest out of all industries surveyed.
- The British economy has come out of recession in Q1 2024 and confidence indicators hint that real GDP growth as well as construction sector activity will accelerate in H2 2024 and 2025.
- Anticipated interest rate cuts will help to stimulate building activity but this effect will be small in size and be felt with a delay.
- The upcoming elections create additional uncertainty; Labour has pledged to spend more on infrastructure and achieving climate goals but it is unclear how these measures are financed.
- Credit risk in the sector remains high: the number of business failures has risen in the past three years and payments performance has also deteriorated.
- The outlook is somewhat brighter but construction companies have generally seen a deterioration of their balance sheets over the past years and refinancing conditions (despite the anticipated rate cuts) will remain challenging.
