Construction slump set for another two years

Published:  04 July, 2011

LONDON: Construction activity will continue to decline for at least the next two years according to figures published today by the Construction Products Association.

It also predicts only weak growth in 2013 before any significant recovery in 2014 and private housing repair, maintenance and improvement spend to be flat in 2012 as consumers defer spending until the Government's Green Deal takes effect.

Noble Francis, economics director, CPA said: "The industry is quite volatile at the moment, with some sectors enjoying increased activity, albeit from a very low base. 

"However, despite some positive signs, the overall prospects for the next few years are very poor. Output for this year is expected to fall 0.5%, followed by a greater fall of 2.8% in 2012.

"In 2013, output will be broadly flat with just 0.2%growth, before a return to some significant growth of 3.4% in 2014.

On a positive note, private housing is expected to grow 62% over the forecast period.

"However, until 2013, we will still be building less than half homes needed to meet the number of new households created each year. These levels of house building will exacerbate the existing difference between supply and demand, leading to an additional housing gap of more than 600 000 homes in just five years," he said.

"The Government has identified construction as a key driver to help boost economic recovery and for private sector work to replace public sector. Unfortunately, although the public work is now beginning to decline and will fall by 24% by 2014, there is little evidence that the private sector work will replace this over the next couple of years."

 

"It is vital that the Government fully grasps the implications of these forecasts. If it wants private construction activity to play a significant part in the recovery, then it must do more to help stimulate the industry, such as accelerating changes to the planning system, improving bank lending, reducing regulatory burdens and increasing the likely success of the Green Deal proposal, for instance by reducing VAT on Green Deal activity in line with the VAT charged on energy consumption. It would also help if the government actually spent on construction what it proposes."

Key findings:

• Private housing starts to rise 4% in 2011

 

• Private housing starts in 2015 will be 14% lower than 2007

• Public housing starts expected to fall 39% in the next three years

 

• Private housing repair, maintenance and improvement output to be flat in 2012 as consumers defer spending until the Government's Green Deal takes effect

According to financial services information provider, Markit's purchasing managers' index, released today, slower expansion of new orders led to a weaker rise in activity in June. Job cuts were also the sharpest in five months. Cost inflation eased markedly and confidence deteriorated to its lowest level of 2011.

 

Sarah Bingham, economist at Markit and author of the UK Construction PMI, said: "June data rounds off a further solid quarter of growth, albeit down on the first quarter. This contrasts with the surprising weakness seen in the official data for the first three months of the year.

"The contraction in residential construction provides further evidence to highlight the weakness of the household sector in recent months, with the sluggish property market linked to high unemployment, job insecurity and worries about the fragile economic recovery in general.

"More optimistically, commercial construction held up well, suggesting that companies continue to invest in new built assets, and civil engineering even showed a nice rebound from a lull seen in May.

"The worry is that the level of business confidence has fallen to a six-month low in the sector, which suggests that companies are expecting growth to weaken over the next 12 months. That is perhaps not altogether surprising given a marked easing in the rate of expansion of new business inflows in June."

Commenting on the report, David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: "Growth in the UK construction sector was broadly unchanged in June, despite reaching a milestone sixth month of expansion. Optimism about increases in activity was stifled by concern over the overall health of the economy and the level of both public and private sector spending.

"Civil engineering activity had a slight reprieve after a notable contraction in May, but commercial activity - still the strongest area of growth - slowed somewhat. 

"Meanwhile, a reduction in residential construction was recorded, unsurprising given reports of sliding house prices. However, this was modest with almost three-quarters of firms reporting no change.

"A solid reduction in employment indicated that companies are meticulously managing their costs, and prospects for any future expansions in output growth look moderate at best with confidence weakening."

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