Construction Outlook: April 2025
UK GDP growth more or less ground to a halt around the middle of 2024, while GDP per capita – a key indicator or living standards – continued to perform poorly. Since 2022 GDP per capita has edged lower, and it is now no higher than in 2019, and just 6% above that in 2007/2008. Over the three decades 1960s – 1980s GDP per capita rose by roughly 25% each decade. Alongside current weak per-capita GDP, it should not surprise that the public sector is commanding a larger share of economic activity, and set to do so over the next few years. We expect both of these issues to dominate over the remainder of the decade.
After rising marginally in 2024, we expect the volume of construction output to fall by 1% in 2025, and around 2% in 2026. Near stability is forecast for 2027. Within this headline data, there is a large disparity between new work and repair and maintenance, with the latter having performed much better than new work since 2020. New work is forecast to remain in decline over 2025 and 2026.
As noted in earlier forecasts, the Government’s 1.5 million homes plan fails to take account of demand. Land supply and planning are important issues, but development is a function of demand as well as supply, and if builders cannot sell as much as they would like, they will adjust building volumes accordingly. This thinking underlies our housing forecasts to 2027/2028, although given the importance of housing, market stimulation via Government involvement should not be ruled out.
Infrastructure receives a great deal of vocal attention from Government, although publicly funded infrastructure has been in decline since 2022, as indicated by orders data which reveal a near 40% drop in public infrastructure orders since mid-2022. Well documented fiscal problems imply weak public investment to 2027/2028, although on a more positive note water investment is set to rise sharply, as shown below. Electricity investment is expected to remain strong, although due to funding issues no new nuclear power stations are expected to start construction this decade.
