Navigating the impact of election uncertainty on construction demand

The latest forecast data from BCIS shows 2024 will remain challenging for the construction industry, and the surprise calling of a general election in the middle of it is an added complication.

BCIS Chief Economist, Dr David Crosthwaite considers the impact of the current period of uncertainty and some of the challenges facing the next government.

Construction demand levels are already low and the uncertainty surrounding the general election is likely to have a further negative impact, at least in the short-term.

Private investors typically adopt a wait-and-see approach, which means they’ll have stalled immediate investment decisions, and government spending plans have also been put on hold during purdah, which adds to the temporary slowdown. Any new administration will need time to set their plans and policies, meaning the effects could last for months rather than weeks.

One example of a delayed scheme is that the decision which had been due on the Lower Thames Crossing application in June has been pushed back to October because of the election.

Challenges for the new government

Whichever party wins the election faces significant economic challenges, including figuring out how to support and stimulate growth in the construction sector. The new government will need to make crucial decisions on a variety of issues, from achieving net zero targets and creating a housing strategy to managing public spending and overseeing major infrastructure projects.

Policy announcements from the main parties show some common ground. Both Labour and the Conservatives have committed to supporting house building and infrastructure development.

Included in Labour’s proposals is the establishment of the National Infrastructure and Service Transformation Authority (NISTA), with the aim of streamlining project planning, design, and costing by merging the Infrastructure Projects Authority (IPA) and the National Infrastructure Commission (NIC). The intention would be to ensure that investments are not just a series of disconnected projects, but part of a cohesive national strategy.

In the Conservative manifesto, there is a pledge to simplify the planning system to speed up the sign-off on major projects, as well as to give more control over infrastructure spending to local authorities.

We polled 250 construction professionals, predominantly surveyors and cost consultants and they said the three biggest challenges facing the next government are housing supply and affordability (60%), the industry skills shortage (60%) and sustainability and net zero targets (51%).

The need for stability and encouragement for investment

Investors need stability, something we’ve probably been lacking globally since the turn of the decade, but particularly so in the UK. Frequent changes in leadership—five different prime ministers in the last 14 years—and the economic disruptions from Brexit haven’t helped. These factors have created a perception of instability, which deters investment.

The UK needs to be seen as an attractive destination for investment, meaning investors need to see guaranteed returns. With public funds expected to be tight in the coming years, the new government will need to prioritise attracting private finance for construction projects.

The cost of finance is currently a major blocker for the construction sector. Governments no longer control interest rate settings, which limits their ability to influence base rates. Despite these constraints, construction demand is driven by investment in fixed assets, highlighting the importance of a supportive investment climate.

What happens next?

The upcoming election presents both challenges and opportunities for the construction sector. The new government must focus on creating a stable investment climate and tackling the economic hurdles ahead. With thoughtful policies and strategic planning, it’s possible to stimulate growth and restore confidence in the sector, ensuring construction continues to play a vital role in the broader economy.

While we anticipate a period of adjustment lasting two or three months post-election, the long-term outlook remains cautiously optimistic. We don’t expect a major impact on demand levels in the long run, although short-term contractions are likely.