While 2022 saw the UK returning to pre-pandemic life, certain sectors of the economy were still left reeling from economic conditions and crises such as the Russo-Ukrainian War. Case in point, inflationary pressures saw building firms suffering two consecutive months of decline in August and September. New orders fell to their lowest level since the summer of 2020 — a looming sign of a recession.
As the Construction Products Association (CPA) forecasts construction output to fall by 3.9% in 2023, we look at some of the key challenges awaiting contractors and other businesses in the industry in the year to come.
1. The Labour Squeezes Continues
When it comes down to it, there are not enough qualified workers to meet the demand for construction work.
The construction industry has faced a labour shortage for several years, and the problem is only expected to worsen in the coming years. With more baby boomers retiring and fewer young people entering the workforce, fewer workers will be available to build new homes and commercial buildings. As a result, construction companies will need approximately 250,000 extra workers by 2026 to meet demand.
2. Inflation and the Strong Possibility of a Recession
As UK inflation hit a 40-year high in September 2022, construction businesses reported that their customers were postponing new work, forcing them, in turn, to freeze hiring staff and procuring materials.
The most obvious impact of inflation on contractors and suppliers is increasing costs of materials and labour. In September, British Steel announced two major price hikes within a three-week period as the firm grappled with extreme energy prices. Meanwhile, inflation and soaring energy prices have also caused the timber price index to grow by 35.4% year-on-year in 2021–2022.
3. Tightening Regulations
Finally, another challenge facing the construction industry is stricter regulations. For instance, in response to climate change, many cities and states now require new buildings to be more energy-efficient and environmentally friendly. This means that construction companies will need to invest in new technology and processes to meet these new standards.
Contractors and suppliers can keep up with these regulatory changes by gaining accreditation or verification. This is where schemes like Verified Supplier and the Common Assessment Standard come in, providing contractors and suppliers with an opportunity to demonstrate their compliance with legislation and industry standards.
4. New Environmental Standards
Environmental regulations are a constant challenge for the construction industry. New rules are constantly being proposed, and existing regulations are often revised. Keeping up with these changes can be difficult, and failure to do so can result in significant penalties.
These regulations are necessary to protect the environment from the harmful effects of construction activity. However, they can also add significant costs to a project. In some cases, complying with environmental regulations may make a project unprofitable. As a result, construction companies must carefully balance their need to protect the environment with their need to stay afloat financially. This is a challenging task, and it often requires difficult decisions to be made. However, those who can strike this balance will be well-positioned to succeed in the construction industry in the coming years.
5. Stronger Calls for Fairness, Inclusion and Respect
Construction is an industry that white men have long dominated. In recent years, however, there has been a push to diversify the workforce and improve inclusion in the construction industry.
In 2022, we expect initiatives like the Fairness, Inclusion and Respect (FIR) Growth Assessment to gain momentum as major construction firms look to make their supply chain networks more diverse and inclusive, driving new efficiencies and innovation.
