2022 has seen three prime ministers, a disaster of a mini-budget, the war in Ukraine and rocketing inflation. How does this fair for the construction industry in 2023?
After an unpredictable year, the construction industry has looked to 2023 with a few predictions about what to look forward to this year.
The Financial impact of the mini-budget will continue to be felt.
Chancellor Kwasi Kwarteng and prime minister Liz Truss introduced a mini-budget in September with £45bn in unfunded tax cuts.
In response, the pound tanked, and the resulting economic spiral provoked an emergency intervention from the Bank of England and an unprecedented response from the International Monetary Fund.
Both Kwarteng and Truss left office within weeks. Since then, inflation has continued to impact mortgage rates and has further compacted the strains of the cost of living crisis and soaring energy prices. But the outlook for 2023 may not be as pessimistic as once feared.
Marc von Grundherr, director of London lettings and estate agent Benham and Reeves, commented:
“A further increase to interest rates will certainly spur a continued cooling in current property values, but it’s extremely unlikely we will see the deep freeze that many may lead us to believe. At most, we can expect a five per cent drop during the first six months of the year, at which point stability will return, and house prices will start to level out. “As for the rental market, we’ve seen values climb consistently higher over the last year and with a shortage of stock continuing to be a burning issue, we can expect the cost of renting to climb by a further 10% in 2023.”
The housing market may stumble but is unlikely to crash.
Managing director of House Buyer Bureau, Chris Hodgkinson, commented:
“While there’s no need to buckle up for a house price crash, we can confidently expect property values to decline significantly over the coming year, with a double-digit decline unlikely but certainly not out of the question. “We’ve already started to see a market weakening due to the combined pressures of high inflation, lower wage growth, and rising interest rates putting massive pressure on household budgets. “As a result, those entering the market to sell will still be able to find a buyer due to the shortage of stock available. But while this continued imbalance between supply and demand will allow them to sell, they will no longer hold the power where negotiations are concerned and will find the hefty premiums secured during the pandemic market boom are no longer on the table.”
Global circumstances -such as the war in Ukraine- will continue to affect supply chains.
Neeral Shah, founder and CEO of YardLink, made the following 2023 predictions:
“With businesses deeper in debt than ever before, managing credit risk must become a top priority for those in the construction industry. The cheap-money era is seemingly over, meaning suppliers will keep an even closer eye on credit scores and prioritise customers that pay within terms. Contractors will have to fall in line or risk damaging relationships, impacting the progress of projects and the movement of goods in 2023 and beyond. “Managing supply chain risks will also become increasingly important for businesses next year, as logistical bottlenecks and labour shortages rage on. Sourcing locally and digitising procurement workflows will become two key ways businesses can mitigate the impact of these risks.”
Others are determined to be positive in their 2023 predictions.
Sean Keyes, managing director, Sutcliffe:
“2022 started strong for many, and there was plenty of positivity in the air. The economy recovered well post-Covid, and despite the complications of Brexit and a post-pandemic world, spirits were high. Unfortunately, things out of our control in the UK, including the war in Ukraine, brought complications and the changing political landscape also brought uncertainty. Still, as we always do, we kept pushing forward! “I also predict that high energy prices and inflation will start to drop as we go through the new year, and we can look back in 12 months on a year that we thought would be tough but improved and brought out the best in a lot of people and businesses. “