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Output slump prompts fears for future

Economists fear the industry will continue to decline after the Office for National Statistics reported a 3.3 per cent fall in construction output in the final three months of 2010.

Construction economists reacted with surprise to the news that GDP declined by 0.5 per cent, when an increase had been widely forecast.

Construction Products Asso-ciation economics director Noble Francis said the news was particularly bad given that the figures had yet to reflect public expenditure cuts for the year ahead.

He said: “It is extremely concerning that these figures show the economy is falling when most people expected a slight rise in GDP.

“[Forecasters] had predicted a rise of between 0.1 per cent and 0.7 per cent in GDP for the fourth quarter. The figures are extremely harsh as a whole and a definite concern for the construction industry.”

The ONS preliminary estimates showed construction output was 6.9 per cent higher in Q4 2010 than in the same quarter a year earlier, but had decreased on Q3 2010.

The pound saw a fall against the dollar and euro immediately after the report was published, and commentators spoke of concerns of a double-dip recession.

Glenigan economics director Allan Wilen said government funding cuts were restricting the flow of health, education and other public sector projects while a “sluggish housing market” had hampered the recovery in private sector activity.

He added: “December’s severe weather conditions compounded the downturn, leaving the value of underlying project starts during the three months to December 29 per cent down on a year earlier.

“Near term, project starts and construction output will enjoy a temporary boost as contractors press on with work delayed by December’s big freeze.

“Looking further ahead, we anticipate that a gradual strengthening in private sector commercial and private housing activity will help to offset the impact of further retrenchment in government-funded work.”

VolkerWessels UK chief executive Alan Robertson said: “Like many businesses in the civil engineering and construction sector, we have been preparing for the continued difficulties within the sector and expect this to be the case throughout 2011.

“As a sector we must continue to innovate, support the future generations of professionals and work together to achieve an efficient, flexible and high-quality service within the constraints defined by future investment. We must also be given the opportunity to advise and support our politicians and regulators.”

Chief European economist at Capital Economics Jonathan Loynes described the figures as “shockingly bad”, and said the results would “raise serious concerns over whether the UK economy is in a strong enough position to withstand the coming fiscal tightening”.

But Confederation of British Industry chief economic adviser Ian McCafferty said: “The magnitude of this preliminary estimate is a surprise, but much of the contraction appears to be the result of the very poor weather.”

The CPA warned in August that industry growth figures “flattered to deceive”.

 

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