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Future success is pegged to Brown's spending promises

ECONOMY

The Chancellor's bullish allocation of funds for greater public spending bodes well for the industry - but he must deliver, writes Brian Green

THE Chancellor's spending review earlier this month grabbed more headlines than one might normally have expected. It would be fair to say that this splurge of interest was driven less by a desire for pointers to the nation's economic performance and more by a combination of the Blair-Brown soap opera and growing excitement over a looming election.

But the political drama aside, there was more in the detail for the construction industry than there was for many others.

Public spending is, and will continue to be for some time, central to the prospects of construction. So it comforted industry's economists and trade body chiefs to find continued commitment to improving the built environment in the chancellor's review.

Gordon Brown has underpinned the forecasts that predict growth into 2006, at which point construction will have clocked up 13 consecutive years of growth. Even today there are likely to be around 5000,000 people working in construction that have never experienced a recession.

But it is not simply cocksure youth and Government prom-ises that are fuelling optimism.

In the first quarter of this year the annual rate of output growth rose sharply to around 7 per cent.This is partly down to the quirkiness of statistics, but the industry appears to be set for another spurt having taken a breather over the past year.

Behind this growth was a 17 per cent boost to public funded building work, which does not include surging PFI funding. In the first quarter of 2004 publicfunded building work stood in real terms 29 per cent ahead of where it started the millennium.

Good as this is, there has been more to warm the hearts of contractors recently.The latest RICS survey of surveyors, for the second quarter, shows activity accelerating widely across the construction sectors. It found 30 per cent more quantity surveyors reporting a rise in work.

There has been a sharp turnaround in the London office market, which has long been associated with being a major driver of construction in the good times.With surveyors among the first to feel an upturn this bodes well for the industry as a whole.

The bounce-back in the office sector has caught many people rather by surprise.But there seems to be plenty of evidence to support the view that the good times are back in this sector.The latest survey of H&V consulting engineers published by BSRIA is also upbeat about the office sector, with more than 60 per cent of consultants expecting there to be more work coming through in the next 12 months The Emap Glenigan figures, too, point to more good news to come in the sector.

The level of commercial sector contract awards is running 40 per cent above that of a year ago, with contract awards for offices almost doubling. But even more encouraging is the clear surge in work at tender stage.

On top of the expected resurgence in commercial work the continued strength of the housing-related market is pumping confidence further.The constant 'will they, won't they collapse?'question surrounding house prices has failed to dent private sector house building, which is riding higher in terms of construction output than at any time since the late 1980s. And Housing Market Report - which carries a regular survey of House Builders Federation firms - shows a majority of firms expecting solid increases in sales this year.

Meanwhile, the pressure generated by the Barker Review is likely to boost social housing, albeit from a low base.The promised rise will ease concerns among any suppliers to the market that are twitchy about a possible collapse.

Then there is the planned spending on health and education.These relatively sluggish sectors have been transformed into key elements of the market mix for many contractors, consultants and suppliers.

While there may be plenty of work already happening on the ground, Emap Glenigan figures suggest more growth to come.

The combined data for these two sectors shows a level of contracts awards over the past year up almost a half again on a year ago and running at 40 per cent above the average over the past five years.With work at the tender stage buoyant, growth in these two sectors over the next year or two looks almost unstoppable.

But beside this vibrantly rosy picture for the building sector sits a civil engineering industry shaded in gloom.The first quarter of 2004 was among a handful of the worse three-month periods for civil engineering output for a decade. And the runes look ominous. Emap Glenigan's figure for civil engineering contracts awarded over the past year was 18 per cent down on a year earlier and the figures for work at tender stage are bleaker.

So, on balance construction appears to be in good shape. But in the short term at least, its fitness does rest on the public sector and its ability to turn the chancellor's promises into work on the ground.