Government cuts throttle construction recovery
Published:  01 August, 2012

The Glenigan Index for the three months to July fell by 1% against a year earlier. Declines in government funded work continue to hold back project starts, offsetting a strengthening in the value of private housing, industrial and commercial project starting on site.

"Looking ahead, the flow of private sector work is forecast to improve further over the remainder of the year and during 2013, while a scarcity of government funded investment will continue to restrict the pace of recovery," commented Allan Wilen, economics director, Glenigan.

On residential construction Mr Wilen said: "The underlying value of private housing starts has increased by 36% over the three months to July, as housebuilders have brought forward sites in anticipation of a strengthening in housing market activity over the coming months. In contrast the index of social housing starts has fallen by 22% in July, after a temporary increase during the first quarter of 2012. Reduced government investment means that we expect this negative trend to continue."

The Non-Residential Index for July was 3% down on a year ago as a weakening in public sector work offsets a strengthening private sector performance. "Office and industrial building are gaining momentum, responding to a shortage in supply following three years of limited building. Retail project starts were unchanged on a year ago, as the reappraisal by Tesco and Sainsbury of their investment programmes has begun to temper previously strong growth. The underlying value of education and community & amenity dropped as public sector cuts continue to bite," said Mr Wilen.

The Civil Engineering Index for July was 13% down on a year ago largely due to the fall in the underlying value of infrastructure projects starts. Utilities project starts also fell. "The overall pool of utilities work remains firm, with the prospect of longer term growth particularly from the energy sector," said Mr Wilen.

Looking ahead Mr Wilen commented: "The cuts in government spending will continue to restrict the number of education and social housing projects coming through the development pipeline. Though the level of health projects has remained resilient so far, we expect a shrinking flow of work over the next eighteen months. Less money for new builds could see an increase in refurbishment work next year, with schemes such as the Priority Schools programme promising to provide funds for such work."

Mr Wilen continued: "There will continue to be a high level of infrastructure investment, particularly concentrated in the south of England. Crossrail will continue to provide rail related work, while there may begin to be a lift in spending on the road network. More growth is predicted for the commercial sectors, though the strength of any sustained recovery depends on economic prospects, both in the UK and abroad. The increase in private housing building seen during the year to date will slow over the remainder of the year. Whilst we expect 2012 to be a growth year, poor household earnings growth and weak house prices will dampen the pace of recovery in the value of starts."

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