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Construction decline expected to continue throughout this year

Despite the recent favourable ONS figures, the construction industry is facing a further decline in output in the second half of 2010, according to the the latest Construction Trade Survey, published today.
This follows last year's sharpest fall in 35 years. Building and civils contractors experienced falls in output in both the first and second quarter of 2010, while all sectors of the industry are reporting poor sales, order books and enquiries.

With public sector cuts looming, the outlook for the industry over the coming months is bleak.

Although product manufacturers experienced a rise in sales in 2010 Q2 the forward picture is very uncertain.

Both light and heavy side manufacturers are seeing a mixed picture, with 61% of heavyside manufacturers anticipating no change or a fall in sales in the second half of the year, exemplifying the uncertainty surrounding the recovery in the housing market and the speed and extent to which public sector cuts will impact upon construction.

Building contractors' workloads fell again during the second quarter of 2010 and output has been falling for nine quarters, with 20% of building contractors, stating workloads fell compared with a year ago.

The industrial sector suffered the sharpest fall in workloads during 2009, with a 34% fall in just one year and this latest survey highlights that the situation in the industrial sector continues to deteriorate.

After falling 27% in 2009, workloads continued to fall in the commercial sector with nearly 30% of building contractors reporting that workloads on commercial projects had fallen, despite work going ahead on a few major high profile projects in prime areas of central London.

'During the next few years, construction is braced for a fall in public sector investment and will increasingly need to look to the private sector for growth., warns Noble Francis, economics director at the Construction Products Association.

'It is critical that capital investment is focused on those areas such transport, energy, and other key infrastructure projects, that will do most to stimulate the wider economic recovery. However, despite this uncertainty, manufacturers are continuing to invest in product improvement,' he added.

'While there are signs of some activity in the private sector, the survey highlights very real worries about public sector investment, said Stephen Ratcliffe, Director UKCG.

'The recent postponement of the Building Schools for the Future programme has added to the lack of confidence about public sector work.

'There is a clear message for government here as it undertakes its comprehensive spending review. We will be pressing politicians very hard over the summer to ensure there is clarity about the future programme when the CSR is announced,' he added.

'The industry's rush to finalise schools projects before spending was cut, as well as the need to play catch-up following the severe weather in the early part of the year have provided impressive headline growth figures,' insisted Julia Evans, chief executive of the National Federation of Builders.

'The underlying picture is not so bright. Factors such as flat mortgage lending, lower levels of lending to construction companies and a planning system in transition put any tentative signs of growth at risk.

'Given the significant contribution that construction made to the overall growth in UK GDP in Q2 2010, we can only hope government takes into account the resulting benefit to the wider economy of a sustained, and sustainable, level of investment in construction when it makes further decisions on spending.'

Key survey findings are:

  • 50% of contractors stated that workloads fell on education and health in 2010 Q2

  • 57% of contractors reported falling orders in the industrial sector during the second quarter

  • 47% of light side manufacturers reported rising raw materials costs in 2010 Q2

  • 45% of heavy side manufacturers reported that fuel/energy costs rose

  • 53% of contractors reported that tender prices fell during the second quarter of 2010

  • 56% of contractors reported a fall in margins in 2010 Q2

  • 10 August 2010

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