Industry output to slow over next two years, says forecast

The Construction Products Association has cut its forecast for construction output and warned the industry has two slow years ahead, although a recession is not predicted.

It rowed back on earlier forecasts that growth in construction output would rise 0.8% this year and 2.4% next year. It has revised those figures to 0.6% for 2005 and 0.9% for 2006.

The association said private housing would be hit the hardest, with a fall in output of 2% this year and a drop in output of 7% next year.

This compares dramatically with 2003 and 2004, when output in private housing grew at least 13%. It fits into a wider concern in the UK about an economic downturn that has hit consumer spending.

Forecasts for the repair, maintenance and improvement sector were also bad. Overall, the association expected output in the sector to fall 1.2% this year.

Recent poor results from DIY chain Wickes reflect falling demand in the maintenance market among UK customers – not helped by a slowdown in the housing market.

If public sector schemes slip, it will be a real threat to construction output

Allan Wilén, CPA’s economic director

The association said that public sector spending, which has helped drive the market during the downturn in the commercial market since 2001, was also a matter of concern.

Allan Wilén, the CPA’s economic director, said that concern was not centred on long-term investment on education and health but on cuts to current spending. He said: “The Building Schools for the Future programme is a major programme but it will take a while until we see the benefit of it on the ground. If schemes slip at a time when the private sector is slow, it will be a real threat to construction output.”

The forecast coincided with a report from Rightmove that predicted a seven-year standstill in property prices. Miles Shipside, commercial director of Rightmove, said: “As many sellers are refusing to part with gains made, buyers are forced to make up the affordability gap. It will take seven years of static house prices and wage inflation to bridge this affordability gap.”

Rightmove said the cost of the average home had risen 0.2% during May and June. At the same time, annual sale price inflation in England and Wales had halved to 2.4%.