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UK construction industry relies on Government contracts to stave off recession

UK Construction Products Association chief executive Michael Ankers said Government investment would keep the industry out of recession in 2005, after 10 years of continuous growth.

UK construction industry forecasts issued this week are for only 0.8% growth this year and slow growth in the following 2 years.

“Although we remain confident that the industry will avoid recession, this is critically dependent on the Government continuing to deliver its proposed investment programme in the built environment,” Mr Ankers said.

“The programmes for schools, hospitals & social housing are particularly important at this time, given the continued decline in infrastructure investment, made worse by the Government’s recent decision to allow councils to divert money away from crucial work on road maintenance.

“Looking further ahead, we see output in the industry beginning to pick up in 2006 (+2.4%) & 2007 (+3.4%), when continued Government investment will be supported by a recovery in private construction activity, especially in the commercial sector.

“These years also see a reversal of recent declines in infrastructure spending, due in particular to increased investment in water-related infrastructure.”

Other key points in the association’s forecasts are:

a soft landing for the housing sector, although housing starts will fall below levels reached in recent years
a reduction in private housing repair & maintenance because of the slower rate of consumer spending and a lower level of property transactions
increased provision in social housing and repair & maintenance of the existing housing stock, and
a gradual recovery in the office sector towards the end of the forecast period to 2007.

RICS more positive

RICS (the Royal Institution of Chartered Surveyors) said UK economic growth slowed sharply in the 3rd quarter of 2004, but the Government expected a rebound in 2005 from stronger exports and business investment.

Among its forecasts, first for the commercial property market:

The occupier market appears to be bottoming out as demand conditions have improved gradually through 2004
A turnaround in activity within the office market has brought about stability in rents
However, retail enquiries for space have declined as competitive pressures continue to squeeze profitability
Investment demand for commercial property remains strong, with financial returns for property outperforming other major asset classes again


Growing affordability constraints and uncertainty as to the direction of the housing market have been reflected in a slowdown in sale transactions
House price inflation has also slowed sharply, according to mortgage lenders
However, there is no notable distress in the household sector, while buy-to-let landlords show few signs of panicking.

The RICS pdf report has 8 pages on the UK economy, the commercial & residential markets and construction.

Websites: Construction Products Association

RICS economic brief December-January

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