It was a mixed quarter for construction product manufacturing in 2024 Q1, reflecting the varying demand in the different sectors of the construction industry that manufacturers’ products feed into. Sales declined for a seventh consecutive quarter for heavy side manufacturers, whose products are typically used in the earlier, structural stages of construction. Along with lower house building activity and fewer large home improvements projects, persistent rainfall in February and March is likely to have affected outdoor work and heavy side demand during the quarter. In contrast, light side sales increased in Q1, marking a swing back into growth after two quarters of decline. Light side products are more likely to be used in the interiors and finishing stages of construction and, therefore, would have been less affected by the weather. Light side demand also continued to be buoyed by the strength of refurbishment activity across the commercial and industrial sectors, as well as energy-efficiency work under government-funded schemes such as the Social Housing Decarbonisation Fund. Encouragingly, both heavy side and light side manufacturers shared a favourable view when looking ahead, with sales growth expected in both the next quarter and the next year as the economic and construction recovery begins to take hold from the second half of the year.

Key survey findings include:

• 36% of heavy side firms reported that sales fell in 2024 Q1, the seventh consecutive quarterly decline
• Sales rose for 24% of light side firms, swinging back to growth after two quarters of decline
• 79% of heavy side manufacturers and 59% of those on the light side expect sales to increase over the next 12 months
• Demand remains the factor most likely to constrain output in the year ahead
• Cost inflation continued to moderate for heavy side firms, but light side firms reported cost pressures from wages & salaries

Construction firms are likely to experience mixed fortunes during 2024 and it will be highly dependent on which sectors they are operating in, according to the Spring CPA Construction Industry Forecasts. House builders and contractors working in housing new build and repair, maintenance and improvement (rm&i) continue to face a subdued environment. Conversely, firms operating in industrial, commercial refurbishment and fit-out or working on major infrastructure projects continue to enjoy strong levels of activity. Overall, after last year’s decline in activity (which is not reflected in the official ONS data), construction output is forecast to fall this year before recovery in 2025 and 2026 alongside stronger economic growth.

In terms of key risks to the forecasts, on the positive side, the possibility of earlier and faster interest rate cuts points towards slightly better economic prospects, which could benefit housing new build and rm&i. Conversely, on the negative side, an overly cautious Bank of England keeping interest rates high for longer may lead to an upward blip in mortgage rates, adversely affecting housing demand.

Total construction output is forecast to fall by 2.2% in 2024, a marginal downward revision from the 2.1% decline in the Winter forecast. However, output is forecast to rise by 2.1% in 2025, a marginal revision upward from 2.0% in the previous forecast. Further growth of 3.6% is anticipated in 2026, but clearly, there is greater uncertainty around activity in 2026 given the impacts of a potential new government on public sector spending plans, given that the government is the largest client in construction, accounting for around one-quarter of construction activity. Within the overall forecast figures this year, there are mixed fortunes across the different sectors. However, the key drivers of the decline in construction output in 2024 remain falls in both private housing new build and rm&i. There are positive and negative risks to the forecast for the UK economy and construction given the current number of political and economic uncertainties. As a result, alongside the forecast it is important to note the CPA’s Key Risks as well as the Upper Scenario and Lower Scenario, in addition to the forecast.

It was a weak end to 2023 and a subdued start to 2024 for firms operating throughout the construction supply chain, according to the CPA Q4 2023 Trade Survey.

Trade surveys for the fourth quarter of 2023 indicated that it was the worst quarterly performance since the first half of 2020, when activity was disrupted by lockdowns at the height of the pandemic, with declines in workloads for chartered surveyors and SME building contractors, and falls in sales for both heavy and light side product manufacturers.

There are still some areas of growth, however, and workloads growth reported by civil engineering contractors confirms that infrastructure continued to provide activity, a pocket of growth also identified by chartered surveyors, alongside public non-housing. Outside of these sectors, however, the constituent surveys point to little near-term pickup in the first half of 2024.

Falls in new enquiries were reported across SME contractors’ main sectors of focus of house building, commercial/industrial and RM&I, which mirrors the official ONS data on construction output, which has shown a notable decline since the second half of last year, and new orders, which have declined since the end of 2022. For product manufacturers, sales are expected to fall in 2024, whilst for chartered surveyors expectations of growing workloads were again restricted to infrastructure and public non-housing.

A stark downshift in the housing market, reluctance among homeowners to commit to large improvements spending and lower volumes of large commercial and industrial projects in the pipeline mean that demand is increasingly being flagged as a primary constraint or concern for activity over the coming 12 months, particularly when this combines with flatlining economic growth, a step-change to higher interest rates and financing costs, and continued uncertainty over input inflation as the Red Sea transport diversions continue.