UK construction makes up for lost ground

UK construction has got off to a good start in 2006, with output returning to firm growth. The good news comes in an RICS report, which notes that new orders during the past six months were at their highest level since 1989. It also found that surveyors were expecting an increase in workloads and profits.

The RICS said UK construction looks set to recover the ground lost last year when output fell 1.1%. The first quarter of this year saw a 0.9% rise in output, which made it the strongest performing quarter since the first quarter of 2004.

The RICS June UK Economic Brief said that while output in the first quarter of 2006 was 0.4% below that of 2005, this reflected the relative weakness of output during 2005 rather than poor performance in 2006.

The report highlighted data from the DTI showing that new orders were looking good. It said orders were up 8% compared to a year ago. This was driven by public housing, private commercial and industrial work. However, there were slight declines in private house building and public works including infrastructure work.

Surveyors questioned by the RICS said they expected workloads, profits and employment to increase in the coming year. Employment in construction rose 0.8% in the first quarter of 2006, marking the third consecutive quarter growth. The report said: “It is clear that employers had to raise wages to attract these new workers as average annual earnings growth was exceeded 4% during the second half of last year.”

But the report warned that the labour market could be “coming off the boil”. It said wage growth had stagnated this year plus job vacancies were falling. The RICS said this could indicate a weaker market but it also could signify high levels of migrant labour, which could be squeezing wages down and reducing the number of jobs on offer.