subcontractor costs

Sub-contractor Costs May Squeeze as UK Construction Falls

While the industry really hoped for a resurgence in the construction sector next year, recent predictions suggest that this rebound might not be on the horizon just yet. The Construction Index have reported that The Construction Products Association (CPA) recently amended its projections, highlighting a dip in the UK construction output growth by 0.3% for 2024, which contrasts their earlier, more optimistic forecasts. What this will mean for sub-contractor costs is yet to be seen.

EEBS Managing Director, Nick Pilgrim says, “We have to agree that although our customers initially bucked the trend, all sectors of the industry are now showing various degrees of slowing down. Sub-contractor costs in the domestic housing sector are definitely being scrutinised, but most other sectors are still reporting healthy order books. However this is most definitely not all bad news! Material costs appear to have either levelled off or dropped back a few percentage points, and the ongoing pressure for ever increasing subcontractor pay rates has very quickly been replaced by more realistic views.

There are, of course, concerns that main contractors or clients may try to ‘revisit’ agreed prices, but let’s hope that the current situation does not herald a return to the subby-bashing days of previous downturns.” In a sliver of good news, the 2023 forecast has been slightly improved. Instead of a grim 7.0% fall in construction output, the CPA now believes the figure will be a slightly less daunting 6.8%. This revision hinges on the belief that the UK’s interest rates have peaked, albeit at a lower point than earlier anticipated. The twist? These rates are expected to sustain for a more extended period, possibly until 2025, under the influence of continuous inflation.

How will unstable sub-contractor costs affect the industry?

Sub-contractor costs, often overlooked, play a pivotal role in these projections. With the construction industry relying heavily on sub-contractors, any fluctuations in their expenses can ripple across entire projects, affecting overall profitability and project timelines. So, what does this mean for the broader UK economy? A period of stagnation in 2024 seems inevitable. Major construction areas, especially new housing projects and repair, maintenance, and improvement (RMI) ventures, will likely see deferred growth till 2025. Despite earlier positivity, infrastructure growth, too, might experience a slight downturn, given that road projects might face potential delays or cancellations.

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Here’s a breakdown of CPA’s latest forecast, according to The Construction Index:

  • Construction: A decline of 6.8% in 2023 and a slight dip of 0.3% in 2024.
  • Private Housing: A considerable slump by 19.0% in 2023, remaining constant in 2024.
  • Private Housing RMI: A decrease by 11.0% in 2023, with a stable 2024.
  • Infrastructure: A modest decline of 0.5% in 2023 and 0.1% in 2024.
  • Industrial Output: A growth of 3.5% in 2023, plummeting by 8.7% in 2024.

Of all the sectors, private housing, the largest chunk of the construction industry, is predicted to bear the brunt of the current economic situation. Elevated mortgage rates, particularly after the brief Liz Truss premiership in 2022, have seen a significant 30-40% drop in housing demand. With the expectation of these rates lingering, the demand is likely to remain subdued.

Outside of the domestic market, the article also ponders the effect of ballooning costs in the infrastructure segment, which may affect the feasibility of significant projects like HS2, the Thames Tideway Tunnel, and Hinkley Point C continue.

The next couple of years seem challenging for the UK construction landscape. Nevertheless, it’s essential to remain hopeful and proactive, seeking innovative solutions to navigate these turbulent times.

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Nick Pilgrim

M.D. | CIS Payroll Expert
01245 493832

Nick loves nothing more than chewing the fat over CIS payroll queries – actually that’s not strictly true; he likes playing golf and driving round Europe, but pick up the phone to him anyway!

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