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Heaviest falls on record…

With the amount of bad news that has been coming out, it is tempting to become desensitised to any new bad figures.

Indeed, some commentators do appear to be seizing on any bits of positive news so they can be the first ones to call recovery.

However, as tempting as it is, we are nowhere near the upturn. Within housing there have been recent rises in mortgage approvals and house prices.

Yet transactions have fallen to such depths that monthly changes are likely to be erratic and the increases have been high as percentage changes but high percentage changes but on low levels.

Homebuilders have been discounting heavily and once destocking has finished, we may expect a slight increase to match demand levels.

But these demand levels are still extremely low by historical standards and the bigger picture highlights a concerning story with construction expected to endure historic falls in 2009.

Macroeconomic forecasts keep being revised down each month that goes by despite government and central bank intervention.

With the fall in economic activity, and unemployment set to break the three million barrier by early 2010, construction is anticipated to fall further.

The latest output and new orders highlighted the worst falls since 1980 and 1983 respectively.

The Association’s latest forecasts published this week highlight a fall of 12 per cent for construction in 2009, the largest fall in construction output on record - and the records go back to 1955.

Private housing and industrial already fell in 2008 and are set to endure further falls this year.

Offices and retail are set to fall as private sector construction suffers a 20 per cent drop in 2009 alone.

Private housing starts are set to fall to 70,000 in 2009, the lowest figure since 1924 and contrasts sharply with 181,000 starts in 2007.

Prospects are that 2010 will not be much better and the Association anticipates starts of only 77,000.

Industrial properties also felt sharp falls following the economic slowdown and by the end of 2010, warehouses and factories construction are expected to be 50 per cent and 39 per cent lower respectively than in 2007.

The falls in offices and retail are just as shocking with expectations that by 2011, the new build offices market will be 56 per cent lower than in 2007 and retail new build will be 43 per cent lower in 2007.

Public growth

It is not all bad news, thankfully. Construction work driven by public funding such as education and rail is expected to grow significantly over the next five years.

On the rail side, the regulator has agreed funding with Network Rail at £28.5 billion between 2009 and 2014, which should provide consistent double-digit growth.

Programmes such as Building Schools for the Future, Building Colleges for the Future and Primary Capital Programme are helping education work but with public borrowing expected to reach unprecedented and unsustainable highs over the next few years, government spending will be cut in the medium term.

In the near term, Building Colleges for the Future has already experienced funding problems.

With the worst fall in construction on record anticipated this year, it is difficult to be anything other than pessimistic.

Noble Francis is economics director at the Construction Products Association

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