Graham Harle is chief executive of consultancy Gleeds
In January, I suggested that 2024 would be a year in which meaningful growth would be stifled by global political unrest thanks to 40 nations taking to the polls. I predicted ‘economic stupefaction’, projecting that lingering uncertainty and a lack of direction would knock confidence and leave investors sitting on their hands until the dust had settled.
Going into 2025, with chaos reigning in France, and Germany facing upcoming elections, it is easy to feel a little smug about our own situation: a stable government, inflation flatlining and interest rates gradually declining. However, I do see another rather unsettled 12 months on the global scene, opening with the dramatic return of Donald Trump to head up the largest economy in the world. After all, it’s still true that when the US sneezes, the rest of us catch a cold. Trump’s proposed tariffs could create a ripple effect that is felt worldwide.
That said, the Organisation for Economic Co-operation and Development assures us that the global economy is forecast to grow by 3.2 per cent in 2025 and will “remain resilient” even though “risks and uncertainties are high”.
“We are in a new industrial revolution: AI, computer modelling, drones and even 3D printing will all have an exponential impact”
Here in the UK, growth forecasts for our sector vary, but industry data specialist Glenigan expects an 8 per cent hike in underlying starts in 2025 compared with 2024 and a further 10 per cent rise in 2026.
As I write, the latest S&P Global UK Construction Purchasing Managers’ Index figures show that construction picked up pace going into the year-end, while other sectors slowed down; forecasts from the likes of the Royal Institution of Chartered Surveyors and PwC are also optimistic that better times are coming.
The UK’s economic upgrade contrasts sharply with downgrades across the eurozone’s largest economies and it does seem that some confidence is returning to the market. Perhaps the turmoil we’re seeing elsewhere may improve the appeal of the UK as a safer prospect in which to invest.
Although far from perfect, Labour’s first Budget contained some big spending promises. Chancellor Rachel Reeves said she wanted to invest £100bn in capital projects over the next five years, build 1.5 million homes and deliver new green energy programmes. Prime minister Keir Starmer himself recently pledged to fast-track decisions on at least 150 major infrastructure projects by the end of this parliament. And deputy PM Angela Rayner has supported the previously blocked Marks & Spencer rebuild project in Marble Arch, London, which indicates a direction that seems to be progressive rather than reactionary.
Fear over tier ones
However, with inflationary pressures still affecting material costs and wages, as well as the increase in employer National Insurance contributions, we all face a tricky balancing act to stay profitable. Too many firms have collapsed over the past year – ISG being a surprising addition to the list of high-profile bankruptcies in 2024.
Insolvencies are likely to remain a concern, particularly for small and mid-sized firms that are already hanging on by a thread, especially contractors.
In Gleeds’ market report on the fourth quarter of 2024, nearly 60 per cent of respondents said they expected to see more tier one contractors go under within the next 12 months, but a third also suggested that ISG’s failure could drive positive industry change through things like improved margins and wider adoption of project bank accounts.
Competition is still tough, cashflow is challenging, and there’s always the risk that a key delayed payment could push a company under. However, 2025 could be the year that the industry gets back on a more even keel and beleaguered businesses start to thrive, instead of simply hoping to survive.
Tech breakthroughs
I think 2025 will continue to show a much greater adoption of new technology to improve quality assurance and project management. We are in a new industrial revolution: artificial intelligence, computer modelling, drone usage and even 3D printing will all have an exponential impact. Faced with challenging labour shortages and raised employee costs, it is natural that those working in the built environment will seek to find answers. While AI cannot yet lay bricks or erect scaffolds, the advances will continue to become more impactful.
The UK AI market is worth more than £16.6bn now and is expected to grow to £788.4bn by 2035; we have twice the number of AI-focused companies as any other country in Europe. As an example of how this can be applied to the work situation, it was recently revealed that following a 10-week trial of AI-aided computer-vision technology, M&S reported an 80 per cent reduction in warehouse accidents.
I tend to take an optimistic view of things, but I do believe that this has the potential to be a good year for construction in the UK. Of course, it doesn’t come without challenges. The global economy remains unpredictable and while some companies will inevitably fall as pressures converge, the ones that are able to address the issues of cost, embrace sustainability, get ahead of digital transformation and cleverly combat labour shortages will be well-positioned to take advantage of the upturn.
