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Government cuts throttle construction recovery

The Glenigan Index for the three months to July fell by 1 per cent against a year earlier.

Declines in government funded work continue to hold back project starts, offsetting a strengthening in the value of private housing, industrial and commercial project starting on site.

“Looking ahead, the flow of private sector work is forecast to improve further over the remainder of the year and during 2013, while a scarcity of government funded investment will continue to restrict the pace of recovery” commented Glenigan economics director Allan Wilen.

On residential construction Wilen commented: “The underlying value of private housing starts has increased by 36 per cent over the three months to July, as house builders have brought forward sites in anticipation of a strengthening in housing market activity over the coming months.

“In contrast the index of social housing starts has fallen by 22 per cent in July, after a temporary increase during the first quarter of 2012. Reduced government investment means that we expect this negative trend to continue.”

The Non-Residential Index for July was 3 per cent down on a year ago as a weakening in public sector work offsets a strengthening private sector performance.

“Office and industrial building are gaining momentum, responding to a shortage in supply following three years of limited building.

“Retail project starts were unchanged on a year ago, as the reappraisal by Tesco and Sainsbury of their investment programmes has begun to temper previously strong growth.

“The underlying value of education and community & amenity dropped as public sector cuts continue to bite,” Mr Wilen said.

The Civil Engineering Index for July was 13 per cent down on a year ago largely due to the fall in the underlying value of infrastructure projects starts. Utilities project starts also fell.

“The overall pool of utilities work remains firm, with the prospect of longer term growth particularly from the energy sector,” Mr Wilen said.

Forecast

Looking ahead, Mr Wilen said: “The cuts in government spending will continue to restrict the number of education and social housing projects coming through the development pipeline.

“Though the level of health projects has remained resilient so far, we expect a shrinking flow of work over the next eighteen months.

“Less money for new builds could see an increase in refurbishment work next year, with schemes such as the Priority Schools programme promising to provide funds for such work.

“There will continue to be a high level of infrastructure investment, particularly concentrated in the south of England. Crossrail will continue to provide rail related work, while there may begin to be a lift in spending on the road network.

“More growth is predicted for the commercial sectors, though the strength of any sustained recovery depends on economic prospects, both in the UK and abroad.

“The increase in private housing building seen during the year to date will slow over the remainder of the year.

“Whilst we expect 2012 to be a growth year, poor household earnings growth and weak house prices will dampen the pace of recovery in the value of starts.”

  • Construction as a whole down 1 per cent for the 12 months to July
  • Private housebuilding project starts increase 36 per cent for the 3 months to July
  • Social housing down 22 per cent; negative trend forecast to continue
  • Non-residential project starts down 3 per cent year on year as weak education and community & amenity projects outweigh growth in office and industrial construction
  • Civil engineering down 13 per cent year on year as infrastructure and utilities projects slow