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Gloom in construction as other industries exit recession

26 Oct 12 There was gloom but no surprise in the construction sector as it remained in recession while other industries climbed out.

Figures published by the Office for National Statistics showed that the economy had returned to growth of 1% in the third quarter of the year, boosted by one-off externalities such as the impact of the London Olympics. But construction sector output decreased by 2.5% in Q3 2012 compared with Q2 2012, following a decrease of 5.2% between Q1 2012 and Q2 2012.

Construction has, historically, been the first to enter recession and the last to exit, so these figures do not come as a surprise, said the National Federation of Builders (NFB). Industry estimates forecast that the construction industry will not see growth until 2014. Some of the underlying issues include difficulties winning work and finance.

The Civil Engineering Contractors Association (CECA) welcomed the overall economy’s GDP estimate but warned that the figures mask a continuing fragility in the construction sector. CECA director of external affairs Alasdair Reisner said: “The whole of the UK has been waiting for the country to emerge from the double-dip recession. As such today’s news is welcome as it indicates a return to much-needed growth. Yet it is clear that the construction sector has declined even further in the last quarter. Given the importance of the industry to the UK economy, delivering projects that support growth in other sectors, as well as employment for millions of UK workers, it is vital that steps are taken to rebuild UK construction.

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“The plummeting output for the sector should give the government grave cause for concern. Any continuation of these declines runs the risk of dragging the UK into a triple-dip recession. We need swift action to unlock the potential of the construction industry so that it can play its role in the sustained recovery of the UK economy.”

Jonathan Hook, construction leader at PwC said: "The decline in construction output of 2.5% is disappointing but not unexpected,” said. “The industry is feeling the impact of cuts to the government's capital programme. Government has got the message about stimulating projects and the potential impact on economic growth and there are also increasingly positive signs from the private sector, but in my view it will probably be a year before the sector starts to see growth again."

As the banks cannot be relied upon to deliver the financing needed, the NFB would like to see the Homes and Communities Agency making funding available to a greater number of lower volume housebuilders. "Also, if we are to see another round of quantitative easing, we would encourage the Bank of England to consider channeling funds through local authorities who are closer to where the money needs to be spent," it said. "The nature of the construction industry, with its long project lead times, means that many of the measures introduced by the government will take time to take effect although we recognise that the introduction of pipelines which detail future projects, go a long way to helping the industry to plan. The £40 billion UK Guarantees Scheme for infrastructure, while welcome, will not directly benefit the SMEs that the government recognises will drive growth."

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