Government slow to use extra construction funding

Published:  12 May, 2009

LONDON: There was a 30% fall in new construction project starts for April, against those of a year ago, says the Glenigan Index. The decline was led by a halving in housing schemes and a sharp fall in non-residential projects. In contrast, civil engineering project starts have picked up sharply since the start of the year.

The public sector continues to disappoint. Significant falls in project starts in the health, education and community and amenity sectors have provided no relief from private sector decline. 

Last autumn’s pre-Budget brought forward some £3bn of capital investment from 2010-11. The declines in public sector starts highlight the slow progress by government departments in utilising the additional funding. This is reflected in a £700m capital under-spend in the last financial year in the areas of health, education, transport and social housing.

Detailed planning approvals for public sector projects have been weak, but Glenigan has identified a number of projects at the tender stage which indicate the second half of 2009 will be more positive.

However, with gross government investment set to fall 27% over the next five years – in cash terms, the construction industry will need to look elsewhere for growth as the UK emerges from recession over the next couple of years.

Conditions in the housing sectors are especially grim. The Residential Index during April was at less than half the level of a year ago.

The slump in the wider housing market continues to depress private housing project starts. The flow of new social housing schemes is also significantly down on a year ago, despite recently announced government initiatives.

The Non-residential Index has also fallen sharply. April's standing was 32% down on a year ago.

The decline has been led by a slump in private sector work. The value of underlying project starts in the industrial, office and retail sectors were running at less than half that of a year ago, as developers  shelved planned schemes due to weak demand and restricted access to finance.

The upturn in value of underlying civil engineering project starts since the start of the year continued during April. A dip in transport project starts in April has been offset by the continued strength of the energy sector and a rise in waste transfer projects.

Near term, the flow of project starts will remain extremely weak. Based on projects Glenigan is currently tracking, it forecasts that the Index will be 18% down during the second quarter of 2009 on a year ago.

"While we expect the Index to improve during the second half of the year, construction activity is expected to remain subdued until 2011," says the organisation.

"New projects in the renewable energy sector and spending on rail and road infrastructure is expected to further strengthen civil engineering projects starts over the course of 2009."

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