Public sector cuts to cause double dip in construction sector

Published:  01 December, 2010

UK: Total construction output in GB in 2010 is expected to end up at £97,800m at constant 2005 prices, which is 3.2% up on the 2009 figure. This is based on the recently released Q3 output figures.

This growth has been driven in part by strong figures from the public sectors during the year and the beginning of a recovery in output for private industrial and commercial in Q3. However, the official statistics are somewhat at odds with the current sentiment in the market and we may see a downward revision by the ONS as more data becomes available.

Despite the growth in 2010, we expect construction output in 2011 to fall by almost 1% on the 2010 figure as the industry suffers a double dip recession. We expect to see major falls in output in the vast majority of public sectors, including both new build and repair & maintenance, as the new government’s cuts start to bite. However, we forecast that all the private sectors, especially infrastructure, will see output growth during 2011. These gains will offset some of the falls in the public sectors.

The Comprehensive Spending Review (CSR) in October will negatively impact many businesses who are reliant on construction activity in the public sector. All but one (Energy and Climate) of the government departments that have the biggest influence on construction output, will see their capital budgets reduced over the next 4 years. Across the key departments the total cuts will reduce capital budgets by around 40% (excluding inflation) by 2014/15. However, the cuts may benefit those who provide outsourcing services to public sector clients looking to reduce their cost base.

Mel Budd, managing director at Leading Edge, commented: “With the deep cuts in the public sector’s capital spending leading to significantly less construction activity in this sector, many contractors and building materials manufacturers are going to have to re-evaluate their target markets in order to maximise growth opportunities.”

“Overall, we forecast slow growth for the construction industry as a whole from 2012 onwards, with total output in 2014 still 7.5% lower than the 2007 peak”.

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