Construction industry close to recession, report warns

The industry may be facing a recession this year if the credit crunch worsens, the Construction Products Association (CPA) warned in a report published this week.

Building magazine reported that in forecasts for 2008, the CPA cut estimated industry growth to 1.1%, compared with the 1.8% it predicted in the Summer before the UK markets slid. Worryingly, the CPA also noted that even this figure is "vulnerable to significant downside risks", which "could tip the industry into recession in 2008 and 2009."

Experian backed up the predictions, cutting its forecast growth for next year to 1.1% from the 2.5% it forecast in the Summer, blaming problems around the US sub-prime mortgage market and the level of large financial institutions' exposure to debts for denting confidence in the UK.

CPA also warned that continuing financial problems will constrain private sector construction activity and, in particular, worsen the slow down in the housing sector. Both the CPA and Experian revised housing sector forecasts downwards, the CPA predicting a 2.3% fall in activity this year, Building reported.

The news comes as Taylor Wimpey, the UK's biggest housebuilder, committed to reduce by 5% the amount it pays subcontractors and suppliers in response to the failing market.

In a letter sent to firms in its supply chain, the £6.7Bn-turnover housebuilder said it needed to take "urgent action", by imposing a 5% price cut on all outstanding work on existing orders and on all orders placed after January 2. "We have not taken this decision llightly," it said. "but it is essential to secure long-term business for us, our subcontractors, suppliers and consultants." Wimpey said it may also review credit terms for suppliers.

Construction News quoted one subcontractor as saying: "I don't remember getting a letter when the market was booming saying 'here, we're doing so well we're going to increase your rates'.

"This is just bullying tactics. They're still selling houses and it's nothing like a recession, it's a slowdown at best."

Suzannah Nichol, CEO of the National Specialist Skills Council urged businesses receiving the letter to "respond clearly saying they are not prepared to agree to it."

The news comes just two weeks after the Office of Government Commerce introduced a Fair Payment Charter to reduce mistrust in supply chains, reported Building.