The report estimates the sector will return to a growth rate of 2.9% in 2025, overcoming headwinds linked to sustained high interest rates and investor caution.

PwC’s H2 2023 Outlook forecast a YoY contraction of c.4% in 2023, broadly in line with wider market commentator expectations. However, the ONS has since confirmed an in-year real growth of 7%. This turnaround is testament to the unpredictable UK economic environment at the time, with speculation for a potential recession.

Repair and Maintenance (R&M) continues to demonstrate greater resilience during challenging periods. Since 2021, R&M spend has consistently outperformed the new build construction market, and forecasts from the report expect this trend to continue in 2024.

New build output across residential, commercial and industrial settings has been negatively impacted in 2024. The private housebuilding sector in particular has been challenged by high mortgage costs and building material, product and labour inflation.

Additionally, investors continue to seek clarity on key objectives, such as unlocking planning constraints, incentivising increased output from volume housebuilders, creating conditions to enable SMEs to thrive and developing viable labour force, skills and productivity strategies. These challenges are reflected in the Outlook, which expects a second year of new build residential contraction in 2024, with real spend declining by 7% vs. 2023.

A more positive outlook is set for house building from 2025 onwards, given the Government’s renewed housing targets, inflation seeing some respite and an improved interest rate environment, both of which will improve affordability. To this point, the Outlook currently forecasts growth in real spend within the residential sector of 7% (6.9) in 2025.

Sam Edwards, director, Industrials and Services at PwC UK, said: “The UK’s construction sector has rebounded strongly since Covid (leading relative to other European markets) and 2023’s actual performance exceeded our and wider forecasters’ previous expectations, reflecting a strong level of activity in the second half of the year.

“Despite this positive backdrop, a range of headwinds continue to impact the sector and the market remains cautious on 2024 outturn, particularly in relation to new build residential and commercial output. This is largely due to sustained high interest rates and investor caution. Consequently, 2024 spend is expected to result in a small YoY contraction of c.2%.

“While we anticipate this small contraction in 2024, the outlook for 2025 is promising, and is testament to the sector’s adaptability and the evolving landscape of opportunities, from new build projects to growth in R&M spend to improve the quality of existing stock. We cautiously expect some potential upside to our forecast from the Labour government’s newly announced house building targets, which if achieved, could result in a significant activity uptick.”