Britain isn't building its way out of this downturn

Published:  13 February, 2012

LONDON: Construction usually leads the way out of recession but Friday's figures from the Office For National Statistics suggest this time it could be different. Output contracted 0.5% quarter-on-quarter, limiting annual seasonally adjusted growth to 2.8% in 2011.

In 2008, output declined 2.7% before the biggest annual fall on record, 2009's 13.4% drop. In 2010, the industry clawed back some of losses with a growth spurt of 8.2%, almost all of it (8.1%) in the second quarter of the year. Since then, like the rest of the economy, construction has flat lined.

Simon Rawlinson, head of research at construction consultants EC Harris, said the outlook was not very rosy either.

Dramatic cuts in public sector non-house building will pull down the industry's output, offsetting a spurt in infrastructure spending, that in turn is expected to level off, he said.

"The Q4 data indicates that public sector cuts are really beginning to bite (7.3% drop in Q4). This confirms a trend that was evident in the monthly output releases issued in November and December and it is the commercial sector in particular that has been impacted by the loss of output from the public sector."

"The real star performer in 2011 has been infrastructure, which has delivered £1.6bn year-on-year growth. It will difficult to sustain this rate of growth in 2012, however the pipeline in place suggests that volumes will stay at current high levels."

His assessment is that output will fall this year. Contrast the situation with the early 1990s. The slump after the 1980s housing bubble burst was almost as bad - a cumulative decline of 14.3% by 1994 compared to a 16.1% during 2008 and 2009 - but once it was over there was consistent growth. There was the occasional negative quarter between 1995 and 2001, but every year was positive. It looks like this year will be a struggle and many subsequent years as cuts continue and austerity takes precedence.

Noble Francis, economics director at the Construction Products Association said: "The trend in construction output is clearly still downwards at a time when government acknowledges that construction is one of the sectors necessary to help the economy avoid slipping back into recession.

"The Association's latest forecasts suggest that construction output will fall by more than 5% during 2012 and there will be no significant recovery in the industry until 2014.

"With forecasts by the Ernst & Young Item Club this week suggesting that bank lending is likely to fall over the next 12 months, this will only exacerbate the problems for the construction industry and the economy as a whole."

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