UK construction new work output fell by 7.3% on a yearly basis at the beginning of 2024, which was the second consecutive quarterly reduction in construction activity. The Office for National Statistics has continued to record growth in repair and maintenance output, which showed a rise of 9.2% across the same period. The trend of new-build reduction alongside expansion of repair and maintenance activity has been a feature for several years now. In context, new-build work remained 9% lower in Q2 2024 when compared against early 2020. In the same period the extent of repair and maintenance has increased by 35%.

Construction sentiment indicators have shown a marked improvement compared with 2023. Despite construction orders being relatively subdued, sentiment is at its highest in two years. Respondents to surveys have reported increased momentum and strengthening sentiment across residential, commercial and civil engineering sectors.

Deloitte’s London office crane survey this summer reported that volumes of new commercial office starts exceed the 10-year average for the third consecutive year. The Bank of England base rate has had its first rate cut from the maintained high of 5.25% to 5.00%, representing the start of restored confidence and the alleviation of the previously muted outlook. This will have a major impact on funding but also on mortgage rates, which have been a blocker to residential development.

Aecom’s building cost index – a composite measure of materials and labour costs – continues to show inflationary increases. The Department for Business and Trade’s composite building cost indices suggest that material prices are 3% lower than this time last year. However, it is worth noting that manufacturing output prices have failed to keep up with input cost inflation. The subdued demand has helped to keep output prices down, and with input prices now reducing there is a likelihood that output prices will remain static as manufacturers look to recoup losses.

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