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Construction sector to decline until 2014

17 Jul 2012

The success of the Green Deal is ‘crucial’ to the recovery of the repair and maintenance sector.

The success of the Green Deal is ‘crucial’ to the recovery of the repair and maintenance sector, according to one construction research specialist, which has recently revised its predictions for the future of the construction industry.

Leading Edge forecasts that total GB construction output volume (at constant 2005 prices) in 2012 will decline by 5.9% compared to 2011. This is a greater fall than the organisation initially expected, having predicted in its January forecast that total output would fall by 3.6% in 2012.

Mel Budd, managing director at Leading Edge, commented: “With the economic conditions showing no sign of improvement for the next 12 months and new orders running at a very low level, it has led us to revise down our forecast. We expect that total construction output will not return to overall growth until 2014.”

Currently having a negative impact on the situation is the Eurozone crisis which continues to constrain access to finance; unemployment, which is expected to increase and falling consumer spending, which showed the steepest reduction for 34 years in 2011. Total construction output in Q1 2012 declined by 4.3% compared to Q1 2011, while public non-housing orders fell by 39% in the 12 months to Q1 2012 compared with a year earlier. New public housing is down by 34% and the recent growth in the private housing sector is said to have stalled, with mortgage lending still remaining subdued. The number of affordable homes started between April 2011 and March 2012 has slumped by 68% compared to the previous year and it is claimed that activity in the regions outside of the South East will be held back by a lack of funding and confidence in the economy.

However, there are some positives: ‘Growth sub-sectors’ such as nuclear are reported to be emerging for companies to target and the rail sector is offering a what is described as a ‘good pipeline of work’ for contractors over the next five years. The government also announced, in May this year, that planned construction works up to 2015 now stand at 629 projects, valued at £40bn. The London market is reportedly the strongest performing GB region, accounting for 20% of total GB output in 2011. It is forecast to be the only sector that will grow in 2012.

Considering the outlook for the construction sector, Mel Budd added: “Much will depend on the government’s ability to get the housing sector and key infrastructure projects moving, but this depends on accessing a large chunk of private investment. Also, with many household incomes squeezed to breaking, the success of the Green Deal will prove crucial to growth returning to the repair and maintenance sector.”

“There remains a significant downside risk to our forecast. If the Eurozone crisis worsens, then the banks are likely to reduce lending again to developers. This could then lead to a return of the 2008/09 scenario, where total output fell by 16% over these two years.”

Leading Edge forecasts that total construction output in 2016, at £111,000m, will still be 3.3% lower than the 2007 peak of £114,800m.