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The UK is officially out of the recession that began at the end of 2023. Although this is a sign of gradual improvement, many of us will not feel the effects of the economic upturn until 2025. Let’s take a closer look at this announcement, and what it means for the construction sector.
UK is no longer in a recession.
From January to March 2024 the UK economy saw a growth of 0.6%. This is the fastest growth seen in the past two years indicating that the UK economy is beginning to show signs of recovery.
Economic growth is thought to have been led by the service sectors and aided by the early Easter in March. Art, hospitality and entertainment sectors are seeing growth as people begin to invest in leisure and cultural experiences again. The early Easter bank holiday also encouraged consumers to get out and about, spending on day trips and short holidays. Car manufacturers are also reported to have had a successful first quarter. Moreover, credit and debit transactions are showing consumers to be investing in clothes and home furnishings. The increase in consumer spending seen across January and March has boosted the economy, thereby providing greater confidence to manufacturers and retailers.
How will this affect me?
With interest rates holding steady at 5.25% as of Thursday, May 9th 2024, numerous homeowners find themselves contending with elevated mortgage rates. This marks the highest interest rates have reached in 16 years, making it more difficult for individuals to enter the housing market amidst escalating property prices. Consequently, many are still grappling with the financial burden of rising mortgage payments, reducing their overall disposable income. It has been announced that the Bank of England may begin to cut interest rates at the beginning of June. However, it is understood that this will be dependent on continued economic growth and political certainty.
Governor of the Bank of England, Andrew Bailey, told the BBC that while the UK is seeing recovery, it is not a strong recovery. It may be some time before working people feel the effects of this economic growth.
Recession in the construction sector?
While the service and hospitality sectors have seen an uplift in spending, the construction sector is seeing a continued economic decline. Construction Products Association (CPA) predicts that the construction sector will decline by 2.1% in 2024. Previously, the decline was predicted to be around 0.3%, highlighting that the construction sector is still grappling with the economic recession.
The fall in construction output is primarily due to a decline in private housing new builds, and repairs, maintenance and improvement projects (RM&I). CPA note that the housing industry collectively suffered from the rise in interest rates in 2023. Moreover, the construction sector saw a difficult start to the last quarter. Persistent rain and flooding slowed down progress on existing projects. International conflict and trading disputes also disrupted the supply chain of necessary building materials. Overall, it has been difficult for construction firms to secure work contracts, and the work that has been booked has been slowed by weather and supply chain issues.
Although there has been some improvement in the mortgage rates between 2023-2024, this has not yet resulted in an increase in private home new builds and renovations. Construction News predicts that there will not be an upturn in the construction industry until 2025, when the projects initiated by new homeowners in 2024 are able to commence. The CPA hopes that the gradual fall in interest rates will kickstart a boost for private housing.
As we move further into 2024, it is also looking increasingly likely that there will be a change of government. A change of government will have an unknown impact on public housing spending, and the delivery of public infrastructure projects. If there is a change of government, it will likely take a few months for the public housing sector to settle. Therefore, although there is a positive outlook for 2025, the construction sector is expected to continue to struggle throughout 2024.
Manager’s insight…
“Whilst we are finding that some of our customers are busy, they are mostly saying it’s work they have had booked in for a while. Others are saying that they are having to fight hard for each order and project. At Edge, we are supporting customers by making sure that they have minimum disruption in their supply chain by ensuring they have what they need to keep their projects moving. It is a key part of our business ethos to be reliable and sustain the level of service Edge customers have grown to love over the years. With high stock levels, next day delivery, and an excellent customer service team, we are working hard to support our customers in this difficult economic climate.’
Trent Napthine, Sales Manager.
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Sources
Blog published 16th May 2024.
BBC News, ‘UK exits recession with fastest growth in two years’, 12th May 2024.
Construction News, ‘Anaylsts predict deeper construction recession’, 29th April 2024.
Construction Products Associations, ‘Construction Hit by House Building Recession’, 29th January 2024.