The UK economy narrowly avoided a recession in the final quarter of 2024, posting a modest 0.1% growth. This came as a slight surprise to economists who had previously forecast a small contraction of the same percentage. The increase, although minimal, provides a sense of relief after months of economic uncertainty. December saw a stronger-than-expected performance, with GDP expanding by 0.4%, largely driven by growth in the services sector. While this is an encouraging sign, it does not yet indicate a return to sustained economic expansion.
Construction and Engineering Sector Performance
The construction sector played a role in this small but notable economic upturn. Construction output increased by 0.5% in Q4 2024 compared to the previous quarter, showing resilience despite a challenging economic landscape. New projects have been a key driver of this growth, particularly in the commercial and residential sectors, where renewed investment and government-backed infrastructure projects have provided a slight boost.
However, this positive development has been counterbalanced by a decline in repair and maintenance work, which fell slightly over the same period. Many firms are struggling with higher material costs and supply chain disruptions, which have made smaller-scale renovations and refurbishments less viable. Additionally, the financial burden on firms due to increased business taxes and rising interest rates has forced some to scale back their project commitments.
One concerning trend is the drop in total construction new orders, which fell by 2.4% in the final quarter. The most significant declines were seen in infrastructure new work, which fell by 23.5%, and private industrial new work, which dropped by 19.7%. These reductions indicate hesitancy among developers and investors, many of whom remain uncertain about the economic outlook for 2025. Although commercial real estate developments and housing projects continue, a slowdown in new orders suggests that the sector may struggle to maintain its current level of activity in the months ahead.
Economic Context and Future Outlook
While the modest GDP growth in Q4 provides some reassurance, the UK economy remains on fragile ground. The Bank of England has already revised its growth forecast for 2025, lowering it from 1.5% to just 0.75%. The revision reflects a drop in business confidence, as companies across various sectors remain cautious about investment and expansion. The increasing tax burden and cost of borrowing continue to weigh heavily on firms, forcing many to reconsider hiring plans and large-scale investments.
Business investment itself saw a notable decline, falling by 3.2% in Q4 2024. This reflects broader concerns about the stability of the economy and indicates that firms are exercising caution rather than pursuing aggressive expansion strategies. For design consultancies and engineering firms, this presents both challenges and opportunities. While large-scale projects continue, the rate of new contract awards is slowing, meaning that firms must be prepared to navigate an increasingly competitive landscape.
Adapting to the Changing Market
For businesses operating in the construction and engineering sectors, this period of economic stagnation requires a strategic approach. Maintaining flexibility in operations, exploring alternative revenue streams, and strengthening client relationships will be key to weathering the uncertainties ahead. Firms should also consider leveraging digital technologies, such as BIM (Building Information Modelling) and AI-assisted design tools, to enhance efficiency and reduce costs.
Despite some optimism surrounding economic resilience, challenges remain. High inflation continues to squeeze profit margins, and workforce shortages persist in skilled trades and technical roles. Firms that proactively address these challenges by investing in workforce development, cost-saving technologies, and strategic partnerships will be better positioned to thrive as the market stabilises.
Conclusion
The UK’s economy may have avoided a technical recession in Q4 2024, but significant hurdles remain for the construction and engineering sectors. While growth in new projects is encouraging, the decline in new orders suggests a cautious outlook moving forward. Firms must remain adaptable, responsive to market changes, and prepared to face a potentially turbulent 2025. With strategic planning and investment in innovation, businesses in these sectors can navigate these uncertainties and position themselves for long-term success.
