How Current Economy of the UK Will effect Construction Industry

This information is based on a survey of more than 1,300 construction industry members—from estimators to finance managers—completed about their competitiveness plans and opinions on using technology to support growth during the impending challenging economic time. This article explores what the poll results reveal about the construction industry's outlook for the upcoming year, including major challenges and the technologies businesses aim to use to help safeguard profit margins while securing and completing projects to a high quality.

Since most survey participants have held various senior management positions for more than 20 years, our findings give a top-down perspective on the industry. As a result, estimators, quantity surveyors, operations managers, and finance executives were highly represented.

The Situation of the Current UK Economy

According to the Office of National Statistics, the construction sector in the United Kingdom accounts for 9% of the GDP, and it is well on its way to recovering from the severe impact of the COVID-19 pandemic. Construction output in September 2022 was £575 million higher than in February 2020, indicating recovery from the unprecedented events of 2020-2021. However, new work was £29 million lower than in February 2020, with construction firms reporting that customers are now putting new work on hold. In the fourth quarter of 2022, inflation is at a historic 40-year high, the war in Ukraine is impacting material and energy costs, and the UK is facing a long and deep recession comparable to the 'Great Recession' of 2008.

Unsurprisingly, most sector workers anticipate a negative impact as the economy enters a recession. 79% of respondents expect a slight to significant impact on their business, with 5% expecting a positive effect from the current economy. When considering the future of a vital sector, Caroline Noakes MP highlighted some positives from the UK government's recent mini-budget and infrastructure investment.

Key Challenges in the Sector

When the economy is tightening and profit margins are threatened, it is more important than ever to monitor productivity. A slow estimation process can disrupt the bid process that drives the construction sector.

According to Surveys, Key Challenges Faced by Construction Workers:

  1. A lengthy estimation procedure
  2. An excessive amount of time spent on reporting
  3. Difficulty managing people costs and daily project allocations
  4. Entering all the data manually

According to Surveys, Key Expected Challenges for the Next Year:

  1. Inadequate visibility (of both internal projects and suppliers)
  2. Maintaining a steady cash flow
  3. Time-consuming processes, such as reporting and project cost and demand estimation

Crisis of a Bad Debt

One of the most serious issues confronting the industry is bad debt. According to analysis, monthly average insolvencies were 30% higher in 2022 than in 2019, and the current economic outlook suggests this will continue into 2023.

Insolvencies of suppliers and subcontractors cause lousy debt to accumulate, which can have a domino effect across the industry, and complete financial visibility across the supply chain is challenging. Bad debt is currently a moderate to severe risk to 63% of participants' businesses, with 81% reporting that bad debt has remained the same or increased over the last 12 months. When predicting bad debt changes in the next 6-12 months, 70% expect that bad debt will increase.

Construction is the Solution for Economy Recovery

As evidenced by the post-COVID-19 revival, where output fell by 46% during lockdowns (Statista), the sector will be critical to driving growth and recovery in the UK, going projects such as the government's targets for new housing and plans to kickstart regeneration in the country's derelict areas. Despite the negative outlook for the economy in the coming year, 45% of those polled expect their businesses to grow during the recession, with only 2% expecting significant shrinkage.

The construction industry is experiencing the same supply chain and lead time issues as others, as demand increases rather than decreases. A recent construction industry report highlighted additional reasons to be optimistic. This survey's findings add to this optimistic future.

Technology Transforming Construction

There are also some concerns about the use of business technology in the construction industry, which frequently relies on Excel and outdated software to manage its supply chain, costs, and workforce. Many businesses still rely on spreadsheets to put together complicated bills of estimations, indicating that the construction industry needs to be faster to adopt technology to make processes as efficient as possible. Only 10% use site management software and 9% use ERP software, 65% use estimating and pricing software, and 58% use dedicated HR and Payroll software. To keep track of costs and revenue, 52% use dedicated financial management software to keep track of expenses and income.

Estimating and pricing software, Training & e-learning software, and ERP software are the top three software solutions for the next 6-12 months. Construction firms require software to reduce their time spent on estimating work to create more bids and win more jobs, with time-consuming estimating processes ranking as the top challenge in our survey. Training software is part of the solution to the sector's recruitment and skill shortages. E-Learning also aids in the expansion of essential health and safety education within the industry. Finally, ERP software can greatly improve the visibility of the entire supply chain, from procurement to asset and site management. This allows managers to see projects from beginning to end and quickly identify issues within a project.

The Construction Sector is Preparing is 2023

The Survey reflects an industry that is cautious about the coming year, with firms aware of unfavourable economic headwinds and eager to address issues that will encourage growth. With COVID-19 recovery well underway and recessionary effects on the way, our industry overview reveals high confidence levels, with 45% of those polled predicting their firms will grow over the next 12 months. Technological investments ranging from estimation software to end-to-end ERP systems address blockers such as low project visibility, bad debt, and slow estimation and reporting processes.


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