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CPA: Don't cut public spending

The Construction Products Association (CPA) has warned the Government not to cut spending as the construction industry is increasingly reliant on Government contracts.

Speaking as the latest CPA survey showed worsening forecasts for construction in the UK, Noble Francis, economics policy development director at the CPA said: “Output is definitely falling in the private sector therefore it is essential that government spending is not significantly cut.'

The CPA survey found that construction output is expected to shrink during both this year and next.

The survey said that after 15 years of almost unbroken growth until the downturn at the beginning of this year, the second quarter of 2008 has worsened still further and 2007’s GDP growth of 3.1 per cent looks set to halve during 2008.

Troubles in credit availability and material price rises as well as the problems within housing spreading into other sectors, were outlined as the main causes of the slowdown.

Stephen Ratcliffe, chief executive of the Construction Confederation added: “Clearly the chill wind that has ripped into house building is beginning to blow through other sectors in the industry and contractors are reporting falls in output. Maintenance of the public sector investment programme is increasingly important for the well-being of construction.
 
“The other serious business challenge facing the industry is the continued rise in building costs driven by higher energy and raw material prices. With tender prices and traditionally narrow margins being squeezed even further, the increased costs cannot be absorbed by contractors indefinitely. It is inevitable that some of these increased costs will be passed on to clients.”

Key survey findings are:

• Sharp fall in private housing as 48 per cent of contractors report decline.  The reliance of government on the private sector to provide social housing means that public housing output is also falling.

• Heavy side firms bear the brunt of the economic slowdown as their sales fall again.  Light side sales continue to rise but more slowly than a year earlier.

• Second quarter has seen a continuing deterioration from the first quarter as slowdown begins to affect contstruction.

• Civil Engineering workload has fallen sharply over the course of the last quarter, after strong growth during 2007.

• Contractors extremely pessimistic as 39 per cent expect further decline in output and order books confirm this outlook of the coming year.

• Manufacturers’ unit costs continue to rise as both energy prices and raw materials increase.

• 68 per cent of manufacturers report that poor demand is expected to limit output growth over the next 12 months.