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Outlook for the construction industry 2024

Published: 20/12/2023

Leaving behind a year of uncertainty, the Building Cost Information Service considers the outlook for construction in 2024.

As 2022 drew to a close, we reflected on a year which had seen three prime ministers, five housing ministers, a mini-budget that provoked emergency intervention from the Bank of England and ended with annual inflation (CPI) at 10.5%.

We were 10 months into Putin’s invasion of Ukraine, witnessing the effects of disrupted exports and soaring energy costs, and the bank base rate stood at 3.5%.

Our General Building Cost Index peaked at 14.6% annual inflation in the second quarter, while the BCIS Materials Cost Index reached 23.5% growth at the same time. Within these materials costs, some resource prices surged; for example, our reinforcement steel index (4/CE/18 Steel for Reinforcement) topped out at 73.7% growth on the year in April 2022.

How has 2023 compared?

Our team of experts has taken a look back at the year (so far), at the industry’s levels of productivity, movement in input costs, and the tendering environment. And, as we conclude the fourth quarter, we look to the year ahead.

‘Could have been worse’

The outlook for 2023 was certainly bleak but, while GDP is now only 1.7% higher than pre-COVID levels, widely held expectations of recession have not come to pass. The bank base rate reached 5.25% in August, where it has since remained, and the CPI rate is at 4.6% (as of October).

In government, we’ve had just the one Prime Minister and only three housing ministers in post, including the incumbent Lee Rowley, returned to the role he held for just shy of seven weeks last year.

The volatility of materials prices, which characterised 2022, has cooled, with labour becoming the new cost driver on projects. Wage awards have brought inflation-matching increases to trades, while skills shortages have been reported across the industry.

Overall output, though, has held, albeit being buoyed by repair and maintenance work – new work will be down for the year, and is expected to decrease again in 2024.

As the last few years have proved yet again, construction is incredibly vulnerable to external forces – shifting government policy, geopolitical developments, and the industry’s ongoing recovery from the pandemic will play no less a part in its required resilience in 2024 as it has this year.


The latest output data we have, covering the first three quarters of 2023, shows all work was up by 2.0% compared with the final three quarters of 2022. Within that, repair and maintenance was up 7.0% and new work was down 1.1%.

We’re forecasting new work output for 2023 as a whole to be down by just over 1%, and we foresee a bigger decrease next year.

The beleaguered private housing sector has fared worst this year, down 9.7% in the first nine months of the year on the preceding three quarters.

But overall contraction in the sector for 2023, forecast at -8.3%, is not as large a decrease as had been expected. This means a bigger fall is now forecast to come next year, before the sector returns to growth in 2025.

The Chancellor’s Autumn Statement contained measures intended to provide a boost to housebuilding, in the shape of promised streamlining of planning processes and funding for schemes for tens of thousands of new homes, but they’ll do little to lower house buyers’ borrowing costs in the short-term. Mortgage affordability remains the fundamental hurdle.

And so housebuilders have reported declining sales throughout the year and NHBC warranty registrations, which cover 70%-80% of new homes in the UK, dropped 53% in 3Q2023 compared with 3Q2022.

Infrastructure has shown positive growth in 2023, up 6.3% in 1Q2023-3Q2023 on the last three quarters of 2022. We’re forecasting a 4.6% increase overall for 2023, but New Orders data from the Office for National Statistics is concerning.

Comparing this year so far with the last three quarters of 2022, new orders for infrastructure (primarily compiled from planning applications submitted to local authorities) were down 31.6%.

The cancellation of the Manchester leg of HS2 dominated headlines in early October, but the impact of inflation on budgets has seen many projects cut back or delayed, including a two-year delay to the Lower Thames Crossing. We expect infrastructure new work output to decrease slightly next year, before returning to growth in 2025, and we continue to call for the government to prioritise a consistent, clear, and committed approach to the projects pipeline.

Infrastructure planning was conspicuous in its absence from the Autumn Statement, though on the same day the Department for Levelling Up, Housing & Communities set out its next steps with measures due by spring and summer 2024.

There was a flurry of activity around reinforced autoclaved aerated concrete (RAAC) at the beginning of the school year, generating many headlines around the prospect of school and hospital roofs falling in on their occupants, though not entirely without warning since the issue had been reported and was being monitored in many settings prior to the media frenzy.

Indeed, existing spending programmes for hospitals and schools, as well as prisons, will help support continued growth in the public non-housing sector in 2024, though the recently discovered RAAC problems may require funding to be diverted in the short-term.

With maintenance budgets in the public sector already under pressure, the RAAC situation has proved exactly why investment in ongoing maintenance work – to keep buildings operational and their users safe – is so crucial.

Construction costs

While the volatility of materials costs dominated 2022, much cooler prices have become the norm in 2023, with the BCIS Materials Cost Index entering negative territory in 3Q2023, with -1.0% annual growth, and predicted to fall further. Considering where we were last year, annual comparisons are expected to continue showing decline into 2024.

According to the BCIS Private Housing Construction Price Index, house builders’ costs are expected to rise by 1.4% in the year to 4Q2023. Although this is significantly down on the peak annual inflation of 15.3% reported in 2Q2022 it is still likely eroding the development margins on current schemes. In 3Q2023, quarterly growth was negative for the first time since 2009, at -0.3% compared with 2Q2023.

Not all materials are showing decreases on the year – ready mixed concrete and cast and spun iron products are among the resources showing double-digit annual growth in our provisional data for October 2023, though these of course reflect data from October 2022 and there is still huge variability and shifting pressures on pricing at play. The Mineral Products Association, for example, has reported that while there has been growing demand for resources for infrastructure projects, this has been offset by the housing market slowdown.

This year, however, we saw labour become the main cost driver on projects, though nothing as dramatic as the soaring materials cost inflation we witnessed, particularly in 2Q2022.

We’re forecasting annual growth in the BCIS Labour Cost Index to be 6.9% in 4Q2023. Wage awards implemented in the summer and agreed for 2024 and 2025 have been inflation-matching, and so the pace of increased labour costs is expected to slow from next year onwards.

With reduced output in the industry perhaps masking the full effects of shortages at the moment, there have been widely reported issues with sourcing skilled labour, including by the BCIS TPI Panel. Earlier this year, CITB published its estimate of 224,900 extra workers (44,980 a year) needed to meet construction demand between now and 2027.

Annual growth in the All-In Hays/BCIS Site Wage Cost Index, compiled using market data from Hays Recruitment, has been in the positive territory since 4Q2020, though the quarterly index showed negative growth in 4Q2022 and 1Q2023. The latest data, a 2.0% increase for 3Q2023, represented the lowest annual growth since 3Q2020.

Because the Hays/BCIS indices generally represent short-term labour requirements for immediate fulfilment, they tend to be more volatile and faster to react to changes in market conditions than other labour indices.

Tender Prices

Annual growth in tender prices followed a downward trend in 2023, with the BCIS All-In TPI falling from 8.6% in 1Q2023 to 3.5% in 4Q2023 on the same periods in 2022 respectively.

Our TPI Panel, made up of cost consultants from firms involved in multiple tenders across the UK, has reported contractors are still sensitive to project risk profiles, and still selective about what they will tender for.

Having said that, we have been tracking contractors’ appetite to tender and saw an increased eagerness in 4Q2023, with 60% of panel members reporting contractors being more and very eager to tender in comparison to the previous quarter, reflecting the overall contraction in demand in the sector.

Two-thirds of panel members also noted that their pipeline of projects for the next 12 months had reduced, further reflecting a general slowdown.

We expect annual movement in tender prices to continue to ease, reaching 2.1% at the end of 2024.

The bigger picture

One of our highlights at BCIS in 2023 was launching the Built Environment Carbon Database, a collaborative project with support from across the industry, to facilitate consistent carbon estimating. We know there is strong support across the built environment to reduce our significant contribution to greenhouse gas emissions, estimated to be around 40% globally, but as the year ends, there has been a frustrating lack of leadership from beyond the industry.

As COP28 draws to a close, reports suggest global carbon emissions from fossil fuels will hit a record high this year, leaving a gaping chasm between where we are and where we need to be.

The BCIS team is entering 2024 more determined than ever to help influence change, and to support our industry’s professionals in reporting whole life cost and carbon measurements.

Register for the next webinar in our construction inflation series on 18 January 2024. 

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