UK construction sector set to lag behind European countries

Construction across Europe is predicted to stagnate in the coming years, with the UK set to stand among the worst performers.

The November forecast by Euroconstruct, which draws data from Experian and Barbour ABI, suggests that growth across the continent will slow to an anaemic 0.2 per cent in 2023 and drop to 0 per cent in 2024.

The latest forecasts compare with a previous forecast of 2 per cent growth in 2024, highlighting the impact that the Ukraine war and rising energy prices have had on the construction industry.

Growth in 2022 is predicted to be 3 per cent across Europe, as firms bounce back from the impact of the COVID-19 pandemic.

However, real growth in the sector may not return until 2025, according to Mohammed Chaudhri, chief economist at Experian.

He said: “During the past six months, there have been enormous changes in Europe that have impacted the economic operating environment of construction.

“The Ukraine war and the manifold impacts and uncertainties it induces, rising interest rates, the tightening of the financial market, and the ongoing problems with construction material availability and costs are all playing a significant part.”

Established in 1974, Euroconstruct monitors construction activity in Western European countries including Belgium, France, Germany, Italy, the Netherlands and the UK.

The UK is forecast to be among the worst-performing countries in Europe, with activity shrinking by 0.4 per cent next year, before growing to stand at 0.7 per cent higher than current levels by the end of 2024.

Of the European countries monitored, Ireland looks to have the best-performing construction sector over the next three years, with forecasts expecting it to grow by 2.5 per cent in 2023.

The lower activity has been caused by a drop in residential work due to higher interest rates in several countries. In the UK, the Bank of England has hiked interest rates to 3 per cent, with the latest rise being a 0.75 per cent increase in October.

Tom Hall, Barbour ABI’s chief economist, said: “The construction industry is experiencing headwinds from multiple directions and things are changing quickly. The economic growth predictions for 2023 have moved accordingly.

“It was only as recently as June that we were expecting 2.2 per cent growth in GDP – this is now as little as 0.5 per cent. Businesses would do well to diversify their portfolios, especially if they are focused on residential projects.

“There is a glimmer of light, though, with civil engineering looking more positive, as many countries invest in low-carbon energy and renovate existing infrastructure.”

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