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21% fall in new construction projects

The total value of new construction projects in the UK has fallen by 21% during the last year, according to the November edition of the Glenigan Index.
Published monthly by Glenigan, the Index monitors the value of all new construction projects in the UK and it reports UK construction starts will stay below pre-credit crunch levels for the next two years.

Non-residential projects are down 20% year-on-year as a result of the sharp reduction in construction starts in the office and industrial sectors. The value of public sector construction starts, including education and health projects, has also weakened.

Even though this sector is likely to continue to struggle in the near term, investor confidence is expected to stabilise during 2009, while new health and education projects in the pipeline should result in a modest improvement in the sector from the third quarter of 2009.

“Construction in every part of the UK has been affected by the fallout from the credit crisis,” said Allan Wilén, economics director at Glenigan.

He added “While the Bank of England’s decision to slash the base rate may help rekindle confidence and money market liquidity in due course, we anticipate a further weakening in new project starts over the next nine months, which will continue to be a drag on industry output into 2010.”

Although non-residential construction as well as private housing continues to decline, civil engineering has increased by 8% compared to a year ago, chiefly as a result of the government’s commitment to developing renewable energy options.

The latest Construction Confederation trade survey (published last week) shows the sharp falls in private housing and industrial sectors during 2008 will be followed by sharp falls in the commercial sector during 2009 and 2010.

The survey reveals the industrial sector has fallen dramatically, with 37% of contractors reporting that output is lower than it was 12 months earlier.

Initially buoyed in the first half of 2008 by good levels of orders in offices and retail during 2006 and the first half of 2007, the commercial sector’s workloads began to slow in the second quarter of 2008.

The survey, published by the Construction Products Association, covers the third quarter of 2008. Noble Francis, economics director at the Construction Products Association said: ‘Despite the government’s attempts to address the problems in housing by bringing forward finance for social housing, 41% of contractors have reported that sales fell in public housing'.

The Construction Confederation survey results are taken from the confederation’s 5,000 member companies, which are responsible for more than 75% of construction work in the UK.

Stephen Ratcliffe, chief executive of the Construction Confederation said: ‘Contractors are caught in a pincer movement between falling demand and rising costs. The inevitable result is lower margins. It is crucial that the public sector holds its nerve and government sticks to the investment programme promised in the Comprehensive Spending Review.’

He added: ‘Government also needs to work with industry to ensure more effective public procurement - helping to reduce industry costs. Measures we have been asking for include clearer information on long term investment programmes; steady deal flows; more integrated supply chains involved in projects at an earlier stage; and less delegation to inexperienced local procurers.’
17 November 2008


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