Public sector construction output plummets 15%

The latest figures from the DTI, published this week, sent a warning signal to the industry that government spending on the industry could drop.

The research showed that in the first quarter of this year construction output in the non-housing public sector fell 15% to £1.7bn, compared with the same period last year, and was 16% lower than the previous quarter.

The industry will hope that the decline was an anomaly rather than the start of a trend, as it has relied on government spending on hospitals and schools to underpin orders while the commercial sector has been slow.

Allan Wilén, economics director at the Construction Products Association, said the reasons behind the drop were “a puzzle”. He said pre-election jitters could not explain the downward shift because they were more likely to affect orders and not output.

He said: “Hopefully it is an aberration and work will start kicking in from new programmes like Building Schools for the Future.”

The industry can avoid recession in 2005, but it is dependent on government spending

Allan Wilén

Overall in the first quarter, construction output dropped 2% to just over £20bn. Wilén said that broadly speaking, the DTI’s latest research fitted in with the weakening pattern the CPA forecast at the beginning of the year. “The industry can avoid recession in 2005, but it is dependent on the government spending side of things,” he said.

The biggest increase in output occurred in public housing, which rose 14% to £578m in the first quarter of this year compared with the same period last year, and 35% on the previous quarter.

Despite forecasts that said infrastructure would suffer this year, output rose 13% to £1.5bn compared with the fourth quarter of 2004, driven by gas, communications, air, roads and harbour work on projects such as Heathrow Terminal 5.

However, Wilén warned that waning consumer confidence, which hit the repair and maintenance sector in the first quarter, were a threat to growth.