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Bumper year for infrastructure boosts 2011 construction output

But fall in final quarter casts doubt on prospects for 2012

The value of work done in the construction industry grew 2.8 per cent in 2011 buoyed by output levels in social housing and infrastructure not seen for over 30 years.

New figures from the Office for National Statistics showed social housing output rose 1.1 per cent and infrastructure by 13.2 per cent between 2010 and 2011 to reach their highest levels since 1980.

Crossrail and improvements to the M1 helped to bolster infrastructure spending.

There was growth in work in private sector housing (8.2 per cent), private commercial (2.7 per cent) and non-housing repair and maintenance (6.3 per cent) in 2011 compared with the previous year. But there were falls in output of 6.3 per cent in public non-housing, which includes hospitals and schools, 8.7 per cent in private industrial and 4.4 per cent in social housing repair and maintenance. Work in the private housing repairs sector changed very little compared to 2010.

The good cheer was reflected to some extent in the final four months of 2011 when construction output was 0.9 per cent up on the same period in 2010. However output fell 0.5 per cent between the third and fourth quarters of last year.

The drop in overall output in the final four months of 2011 was caused by reductions in five of the nine subsectors measured, including private and public housing and non-housing repairs.

Andrew Duncan, managing director of property at consultancy Turner & Townsend, said the tail off in output in the final four months of 2011 attested “to the continued lack of sector confidence and lingering macroeconomic concerns about the fate of the eurozone”. However he said early indications for 2012 were more encouraging. He said: “We’ve seen a measurable improvement since the start of the year, with more work coming down the pipeline and improving market sentiment.”

However the Construction Products Association was more pessimistic about prospects for this year. Noble Francis, economics director at the CPA said the decline in output for the final quarter of 2011 served “to reinforce our concerns about the prospects for the industry over the next 18 months”. The CPA predicts a fall in construction output of over 5 per cent this year and says significant recovery will be delayed until 2014.

He said: “This year will see a dramatic 14 per cent fall in public sector construction as spending cuts begin to bite. The real concern, however, is that private sector construction is not recovering fast enough to offset this and will fall further during 2012, with the private commercial sector 5 per cent lower than this year. With forecasts by the Ernst & Young Item Club this week suggesting that bank lending is likely to fall over the next 12 months, this will only exacerbate the problems for the construction industry and the economy as a whole.”

Simon Rawlinson, head of strategic research at consultancy EC Harris said 2011 had been “a good year” for construction but the drop in output in the fourth quarter showed the effect of public sector cuts. He expected output levels to fall in 2012. “There will be rapid reductions in public sector investment in non-housing and non-infrastructure and there’s likely to be shifting patterns of private sector investment which result in little net gain to overall volumes,” he said.

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