Construction growth to fall to 2.1% this year

Growth in construction output will fall from 3.7% in 2004 to 2.1% in 2005, according to a report published this week by Experian, the business research company.

Experian is predicting falls almost across the board, but the sector hit the hardest will be housing, down from 13.9% to 1.4%. The repair and maintenance (R&M) sector is the only one set to show improvement, with growth up 1.5%, compared with a fall of 0.5% in 2004.

According to Experian, in 2005 there will be a drop in construction output growth for the second consecutive year, after it fell from 5.1% in 2003 to 3.7% in 2004.

However, in 2004, construction output outstripped GDP for the third successive year, and strong performances in new housing were only partially offset by declines in infrastructure and non-residential R&M work.

Growth is expected to decline further still in 2006, to 1.7%, before picking up to about 3% in 2007. For the next two years, GDP growth is forecast to outperform that of construction output.

Experian blamed the slowing housing market for the drop.

“We expect faltering house prices and a stalling buy-to-let market to impact on consumer confidence and depress short-term demand,” said James Hastings, associate director of Experian’s business strategies division.

Private housing is expected to drag the market down, stagnating this year and declining in 2006. On the other hand, Hastings said that new public housing output is expected to “steam ahead”, as schemes providing more affordable housing take off.

Although public spending on non-residential building has driven the market in the past three years, with health and education work growing 20% year on year, Hastings said that this level is unsustainable in the longer term and is predicting a “substantial” decline this year and next.

Experian was more optimistic about the commercial market than many, and is predicting that the office market will bounce back from the “doldrums”, where it has been languishing for the past three years. It predicted a comeback in the second half of this year.

Experian was more optimistic about growth in construction output than the Construction Products Association, which published a forecast report three weeks ago that predicted a fall from 3.2% growth in 2004 to just 0.8% in 2005.

However, Experian shared the CPA’s concern that infrastructure is in a poor state, despite the major projects on site, including Heathrow’s Terminal 5 and the Channel Tunnel Rail Link.