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No construction recovery until 2014

24 Oct 11 The construction industry is unlikely to return to growth until 2014 at the earliest, according to revised forecasts from the Construction Products Association (CPA).

It was only four months ago that the CPA forecasted that recovery would be put back from 2012 to 2013. But the past quarter has failed to see strong enough private sector recovery to offset the impact of government spending cuts. As a result, there will be no upturn until at least 2014, its economists reckon.

Even worse – 2012 is likely to prove an even tougher year than 2011.

CPA chief executive Michael Ankers said: “Although government is committed to cut capital expenditure by 20% over the next four years, the hoped for robust recovery from the private sector, to compensate for these cuts, is not materialising. With both the commercial and housing sectors still performing badly, our latest forecasts indicate that construction output will fall by more than 1% this year, a further 3.6% next year and no growth in 2013. Recovery finally arrives in 2014, but by then we will have experienced the worst decline in construction activity for more than 30 years.  It is essential that more is done by government to kick start the economic recovery. “

Other key points in the latest CPA forecasts include:

  • Total housing starts to fall 1% in 2011 and a further 4% in 2012
  • Public construction (including PFI) to fall 24% by 2014
  • Education construction to fall 41% by 2014
  • Health construction to fall 45% by 2014
  • Private sector construction to rise 18% by 2015
  • Construction of commercial offices to rise 5% in 2012 and 14% in 2013.

According to the CPA, housing starts in 2012 will be the second lowest year since 1945. Although private sector housing is slowly recovering, public sector housing starts are forecast to fall by a third, leading to an overall reduction in the total number of housing starts in 2011 and 2012. 

“By the end of the forecast period we will have a shortfall of more than two million homes in the UK,” Mr Ankers said.

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He added: “Equally worrying is the commercial sector, the largest construction sector and a bellwether for private sector activity.  Although commercial construction in central London is buoyant, there is little activity in rest of the country.  As a result this sector is expected to see a fall of three per cent in 2011 and four per cent in 2012 before a return to growth in 2013.

“On a more positive note infrastructure output is set to grow throughout the forecast period, driven by considerable increases in rail and energy related work, even though road expenditure continues to decline.  During this period rail infrastructure will see growth by almost 80% and construction of energy related projects by a massive 200%.”

Mr Ankers called on the government to look for cuts in current expenditure rather than capital works. He said: “Government recognises that construction is a key part of economic recovery, yet these forecasts herald a very difficult few years, not just for construction but for the wider economy.  It is therefore essential that the government uses the Autumn Statement to stimulate recovery by rebalancing the economy between current and capital spending.  Government’s own figures show current expenditure rising from £632bn this year to £694bn in 2014/15, whilst capital expenditure is cut from £61bn to £42bn over the same period.  Rebalancing this could make way for the £5bn package of essential infrastructure investment that many commentators have called for.

“Similarly government must do more to stimulate house building and help first-time buyers onto the housing ladder.  The announcement about the release of public sector land is welcome, but it is access to finance, not development that is currently holding back the housing market. Government therefore needs to look at mortgage indemnity guarantee schemes, or government backed savings scheme for first-time buyers to help ease this situation.

“‘Finally the government must do more to support the Green Deal programme.  The stimulus to the economy and the benefits to our industry could be huge.  However, without a fiscal stimulus, such as a reduction to five per cent in VAT for all Green Deal compliant work, Green Deal is unlikely to be successful.  It is essential the Chancellor uses the Autumn Statement to address these issues as without these stimuli, the next few years will be very bleak indeed for the UK economy.”

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