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‘Terrible’ time if Government does not spend

The Construction Products Association does not believe the construction industry will recover until the second half of 2011.

Why have we downgraded our forecast? We are not alone in doing so. Macroeconomic reports from the likes of the CBI are having to be revised in a similar fashion.

Since our last set of forecasts, the economic climate has deteriorated quite significantly. One of the factors we hoped would have improved is the availability of bank liquidity.

If anything, despite the money that the Government has pumped in, the banks have become less willing to lend. In our industry, private funding is crucial. Housing in particular has been almost obliterated by a lack of available private funds.

People simply cannot get mortgages.

Private finance initiative projects are also struggling on account of not being able to secure private sector cash. The Olympic Village is a good example. We know it will be built, but securing the finance is proving so difficult.

Add to this the fact the retail and office sectors have taken a further downturn and you can see why we are forecasting things in a less positive light than a few months ago.

We really are in uncharted territory for housing. There is no doubt it will recover, but there is no telling how quickly. There is a real danger that if the economy recovers too quickly and money starts chasing housing, that high inflationary pressures will take hold.

Another reason we have put back our forecast for recovery is a concern about the Government’s previous record in pushing through capital spending.

We are not convinced it will find it easy to meet its aims, given that up to now goals have been missed consistently on the likes of the Building Schools for the Future programme.

On what basis can we be confident it will change with projects brought forward in these more difficult times?

Furthermore, despite the short-term increase in Government spending, it is not spending more money overall. The £3 billion capital spending injection announced in November is not extra spending; it has been brought forward.

This means it is taking work away from 2011 with the Government relying on a major private sector economic recovery by then.

We don’t feel the private sector will recover quickly enough to make up for the shortfall in public sector spending in two or three years’ time.

We need to make sure money is available. Construction depends on capital investment. Not everyone is convinced by the Government’s assertion that everything will be good again by the summer.

We understand the Government is looking to address liquidity issues and measures will be taken in the fairly near future to improve liquidity.

We have forecast a near 9 per cent fall in output this year, but if for whatever reason the Government did not spend what it
had set out to, the construction industry would be forced into a terrible situation.

By Michael Ankers, chief executive of the Construction Products Association.

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