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Delayed public sector impact casts ill omens for next year

For those of us geeks who follow every piece of economic and construction data, it has been a weird last 18 months. CIPS says construction has risen every month for the past 15 months and only fallen once in the past 25 months.

The Office for National Statistics, on the other hand, says that construction rose in 14 of the past 25 months and fell in the other months. I side with ONS.

That appears more in tune with what the other trade surveys across the industry are saying. Also, it is in line with what the construction companies are telling the City in their financial reports.

Looking forward, the omens are not great over the next year. New orders in 2011 were 14 per cent lower than a year ago and this will, over time, feed through into output. But it depends which sector you are in.

Private housebuilding and infrastructure are expected to grow considerably over the next few years, while public sector construction is expected to fall sharply.

The large housebuilders reported good results last year and, although this was primarily based on increasing the value of their land and profit margin, they did also raise units.

I’d expect this to continue and the large housebuilders will be looking to margins of around 10 to 15 per cent, with units increasing around 5 to 10 per cent this year.

Things aren’t so easy for small housebuilders, who continue to endure problems with cashflow and planning.

But overall, we’re expecting private housing starts to rise 5 per cent this year before double-digit rises after that as a more certain economy, hopefully, helps the housing market continue to recover from the lows of 2009.

Infrastructure is expected to grow one-third by 2016. Rail continues to grow, boosted by Crossrail, the largest construction project in Europe, and also by station refurbishments around the country. Energy also has vast amounts of work.

Offshore wind capacity is set to quadruple over the next five years. The new nuclear programme is going to see workloads rise rapidly with main works on Hinkley to start next year and work on two further plants to start in the following two years.

Overall, work in energy is set to rise from £1.8 billion in 2011 to £5 billion in 2016.

Offsetting these rises, however, are the rapid falls in public sector work. Government capital investment is set to fall £62 billion in 2010/11 to £47 billion in 2015/16 and this will inevitably affect social housing, in addition to schools and hospital provision.

Public housing starts are set to fall from 29,000 in 2011 to 18,000 in 2013. Education construction is set to fall 30 per cent by 2014 and health construction is set to fall 21 per cent as the spending cuts bite hard.

Even still, both these sub-sectors will still provide a total of £10 billion of work.

The government spending cuts have taken longer to make an impact than I expected 12 months ago but the new orders from 2011 point to a difficult year ahead.

Noble Francis is economics director at the Construction Products Association


Readers' comments (1)

  • Unfortunately I concur with your view, it would seem, certainly from my point of view, that CIPS is far too optimistic. The market is very tight.

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