UK Construction Heading for Double Dip

The UK construction industry is heading for a double dip recession, according to the latest Construction Products Association’s industry forecasts.

They predict that construction will be the first major industry sector to fall back into recession following a temporary recovery in the first six months of this year. Despite strong growth in the spring and early summer, the forecasts show output will fall in the remaining months of 2010 and the decline will continue into the first part of 2011.

Commenting on these forecasts, Michael Ankers, Chief Executive of the Construction Products Association said: "In 2009 the construction industry suffered its sharpest fall in output since 1974 and whilst there was a bounce back in the first six months of this year, the figures are deceptive. The factors that drove this growth – the short term impact of the last government’s fiscal stimulus; a tentative recovery in the housing market; and the start of a number of major projects in the run up to the Election – are not the basis for a long-term recovery.

"Although 2010 as a whole is likely to be slightly better than 2009, it is very much a year of two halves with construction output slipping back in the second half of the year as a result of growing uncertainty in the housing market and cuts in public spending.

"Looking forward, the industry needs to see strong private sector growth to offset the significant reduction in public investment that we anticipate over the next few years, but as the latest information on new orders for construction work published on Friday shows, recovery in orders for private sector work go nowhere near what is needed to offset the anticipated 18% fall in public sector construction work over the next two years."

Mr Ankers continued: "Whilst we can see the prospects for a pick-up in output in 2012 and the following two years, this recovery is going be slow and hold back a more rapid growth in the wider economy. Even by 2014, output in the industry will not even have recovered to the levels it experienced in 2003.

"The government’s economic programme must recognise that spending cuts and tax rises alone will not secure long-term economic growth. Construction will play a significant part in the recovery, as it provides the essential transport improvements, energy supply and educational facilities the country needs. A failure to invest in this essential infrastructure will undermine the international competitiveness of business, increase long-term costs for future maintenance and replacement of essential assets and curtail the prospect of a private sector led recovery on which the UK’s future so critically depends."

Other key points in the forecasts are: Even with trend growth in construction every year, construction output would only return to the 2007 pre-recession level in 2019; Public sector including PFI output is expected to fall 26% over the next four years; Despite growth for five consecutive years, private housing starts in 2014 will still be 18% lower than in 2006 and total housing starts will still be 41% lower than the figure required to meet anticipated annual population growth; Infrastructure output is set to grow by almost 50% between 2009 and 2014 driven by investment in rail infrastructure and energy provision; Commercial output is forecast to rise for four years, between 2011 and 2014, yet it will remain 15% below levels seen in 2008.

(GK/KMcA)