Slowdown in construction output forecast

Construction output for the coming year is forecast to grow by just over 1% compared to 2.6% enjoyed in 2007. However the industry expects to avoid recession during the current economic slow down according to the latest forecasts from the Construction Products Association, even though this rate of growth is expected to remain at a modest 1% per annum, all the way through to 2012.

Key elements of the forecast are:

• Housing starts are expected to fall to 205 000 in 2008, but recover to 235 000 by 2012

• Output on commercial projects is expected to reach a peak in 2009 with output of £17.3 bn, but fall back to £15.5 bn by 2012

• Output on infrastructure projects, which has declined sharply over the last decade, is expected to recover strongly over the next five years with output increasing by over 25% from just under £5 bn in 2007 to more than £6.5 bn in 2012

• The repair and maintenance market is expected to remain subdued throughout the forecast period, with some recovery in the private sector after 2010, offset by falls in programme of repair and improvement for the social housing stock

• Output on public sector projects is expected to grow by 2.8% pa over the next five years, more than double the rate of growth in the private sector which is forecast to grow at just 0.3%pa

Commenting on these latest forecasts, the Association’s chief executive, Michael Ankers said: “The economic backdrop against which these forecasts have been prepared is more uncertain than for many years and there was a time when the construction industry was the first to suffer in such a situation. What we are seeing, however, is the fall in private housing – both new build and repair and maintenance – over the next couple of years, balanced by continued growth in the commercial sector on the back of major schemes that are already underway.

“The industry will also be supported by increasing government investment in its schools’ programme, a modest recovery in spending on infrastructure projects and the start of the major projects associated with the Olympic Games and the Stratford City Development. As a result, construction output is expected to grow by about 1% in both 2008 and 2009.

“Looking further ahead to 2010-12, the prospects for the commercial sector are less bright as investors cut back in response to the large amount of commercial space that will become available following significant investment in recent years. However, this decline is expected to be balanced by a recovery in the housing market and the commencement of a number of large infrastructure projects such as Crossrail and the M25 widening scheme. The consequence of all this is that growth in output is expected to remain at around 1% a year.

“There are undoubtedly risks associated with these forecasts and we are assuming that the Bank of England will continue to lower interest rates throughout 2008. Failure to do so will undoubtedly delay any recovery in the housing market, whilst any cut back in consumer spending will directly impact on investment in the retail sector and the private repair and maintenance market. The forecasts also rely on government remaining committed to its investment plans for education and health and whilst significant reductions in these programmes seem unlikely in the run up to the next Election, what happens after that will to some extent depend on the strength of the government’s finances.”