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Tough times ahead despite a better start to 2011

Further evidence that construction output grew in the first quarter of 2011 was offered today - but expectations for the year ahead were largely negative with public sector work falling away and private sector sentiment remaining weak.

Following its recent state of trade survey considering the views of manufacturers, the Construction Products Association released another report drawing on the latest surveys from the Civil Engineering Contractors Association, the National Federation of Builders, the National Specialist Contractors Council and the UK Contractors Group.

The conclusion was that construction grew in the first quarter of 2011 compared to the weather-affected final quarter of last year.

Large and medium sized contractors reported that output increased across all but the public new housing sector in the first quarter of the year.

But the report also said rising material costs and intense competition to win contracts from a dwindling pool continued to push industry-wide tender prices ever lower. Only 5 per cent of building contractors were able to raise tender prices in Q1 2011, compared with the last quarter of 2010.

The reports said that while product manufacturers expected to continue to benefit from rising exports, expectations about future output across the industry were “firmly negative”, suggesting that any improvement in early 2011 was largely due to catch-up following the snow affected fourth quarter.

Dr Noble Francis, economics director at the CPA, described the near future as “extremely challenging with domestic demand remaining subdued, exacerbated by expectations of further rises in fuel, energy and materials costs”.

Stephen Ratcliffe, director of the UKCG, said there was a lot of concern about the year ahead. He said:  “The government has stated that construction is at the heart of its growth strategy for the UK economy and, as it accounts for around 10 per cent of the UK’s economy, it is vital that investment in essential schools, hospitals and housing is maintained at levels that will provide the basis for economic recovery.”

Julia Evans, chief executive of the National Federation of Builders, added: ‘The overall downward trend is not encouraging. As long as the fundamental issues of difficulty with access to finance and prioritising cost over value remain, the trend is unlikely to be reversed.”

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