In for nasty weather

While we were trying to assess the impact of Lehman Brothers’ collapse, Merrill Lynch’s sale and AIG’s near-death experience, along come reports of HBOS’ potential marriage to Lloyds. All we know for sure is that we’re not in Kansas anymore. So thanks to the sages from the finance world and construction leaders for taking part in our Future Forecasting Conference on Wednesday (see pages 10-11).

Despite the uncertain times, our speakers tried to shine some light on the tougher times ahead. So for the the dazed, confused and the downright depressed, here’s a stab at what might lie ahead …

• It’s going to get worse before it gets better: the consensus is that house prices may fall by as much as 25% by the end of next year. Meanwhile, the growth in public spending won’t outweigh the dip in the commercial sector, where there will be a £7bn fall in output between now and 2010. After that, order books are likely to look thin.

• We will have some respite thanks to falling interest rates on the back of lower oil prices. The rate could be down to 3.5% by the end of next year. The housing sector could recover by 2010 as properties become more affordable and pent-up demand is released. That said, the UK will be the slowest economy to come out of recession: too much spending has been fuelled by second and third mortgages, and Britain’s budget deficit is well above other countries in the industrialised world.

• Say goodbye to the residential tower filled with two-bedroom flats. These will give way to more traditional, lower-density housing, much of which – controversially – will be built on the green belt.

• Housing policy, from zero-carbon homes to the infrastructure levy, was predicated on a continuing boom in housebuilding. Now production may fall as low as 60,000 next year, so a rethink has to be on the cards.

We will be slow to come out of recession – too much spending has been fuelled by second and third mortgages, and Britain’s budget deficit is well above other countries

• There will be winners. Firms with a track record in education, infrastructure and public housing are all likely to be sheltered from the worst effects of the downturn. Gordon Brown is unlikely to cut public spending – officially at least – with an election in the offing, unemployment rising and the economy trembling like an palsied aspen. Come 2010, and the general election, we’ll be playing by different rules.

• Small and medium-sized contractors with exposure to the housing and commercial sectors will continue to lose out if they can’t get onto framework contracts. And consultants who can’t take flight to the Middle East or eastern Europe will be in difficulties.

• Expect lowest-bid single-stage tendering to make a comeback and partnering to be on the retreat as tender prices flatten out next year. Anecdotal evidence suggests this is already happening. And what about the enlightened approach that many firms have evolved? How much will we care about work–life balance when everyone’s staying until 9pm to show how indispensable they are?

The picture of the next two years that emerges doesn’t offer much comfort for anyone. Better tighten your belt – and make sure it’s securely buckled …

Denise Chevin, editor