Stace Outlook Index, December 2022

The Stace Outlook Index brings you the latest updates on the UK economy, the industry and Tender Price Index (TPI) forecasts.

Deep recession averted but global headwinds to impact growth

GDP contracted by 0.2% between July and September marking the start of what is expected to be a long recession which will undoubtedly see ripple effects across our industry. As announced in the Autumn Statement, the Chancellor hopes to repair public finances by tightening fiscal policy over the course of the next year, a move that has calmed the markets. Potential factors such as a fall in real wages, increased interest rates combined with the wider uncertainty around the UK and global economy means that demand for construction projects is expected to fall.

The future is not all gloomy, whilst gas prices are still at historic highs, they have fallen from a peak in the summer. The CBI’s Director-General declared that there are very real grounds for optimism for our economic future at their recent conference. The EY ITEM Club predicts that inflation will decline next year more rapidly than expected by the OBR, they also forecast that interest rates will peak lower than current market and OBR thinking.

Encouragingly, construction output increased by 0.4% in September, the only major sector to see growth in the same period (ONS). The increase came from both new work (0.6%) and repair and maintenance (0.2%) with public housing repair and maintenance, and infrastructure new work making the largest contributions.

Contractors can now manage inflation better by pre-ordering materials, resulting in earlier requests for information. Prices of materials continue to move upwards, with fuel and energy prices having the largest impact and imported European goods continuing to escalate and affect trade pricing (BCIS). Whilst prices are still high and increasing, the rate of annual price growth has slowed slightly from the record increase seen in May 2022 (ONS).

Industry commentators are predicting a range between a 2.5% to 6.2% increase for 2023, our current analysis of the data has led us to set the Stace LLP TPI all-in average forecast for 2023 at 4.0% for the UK and 4.0% for London.

Reference List

ONS, UK Economic Data

Bank of England, Current Bank Rate 

CBI Annual Conference

EY ITEM Club comments Autumn Statement

Construction News

BCIS

The information contained in our biannual Stace Outlook Index is for general purposes only. The content provided by Stace LLP always endeavours to be up to date and accurate. Stace LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material. The Tender Price Forecast may be required to change when discussing project specific requirements. The data is obtained from sources including the ONS, Monetary Policy Committee Reports and RICS.