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Spending cuts delay recovery by 12 months

Savage cuts to government spending on roads and social housing will delay the recovery in the construction industry by a year, according to economic analysis.

Revised forecasts from the Construction Products Association this week said the industry would not return to growth until 2013.

The CPA’s previous forecast, released in September before the government’s Comprehensive Spending Review in October, predicted the industry would start
growing again in 2012.

But the capital spending cuts outlined in the CSR proved worse than anticipated in many sectors, and this is reflected in the revised forecasts.

Although industry output is now expected to rise by 4.5 per cent this year - after two years of decline - it is then predicted to fall by 2 per cent in 2011, rather than
by the 0.8 per cent predicted before the CSR.

Perhaps even more significantly, a further fall of 0.7 per cent is forecast for 2012. The pre-CSR forecast was for 0.9 per cent growth in 2012. CPA chief executive Michael Ankers said the prolonged second dip of the construction industry recession could have implications for the wider economy.

He said: “The increase in construction output in 2010 has been an important component of the growth in GDP over the past two quarters.

“Unfortunately, these latest forecasts show that construction is unlikely to provide the same impetus over the next two years and this will almost certainly slow
growth in the wider economy.”

The industry is predicted to return to growth in 2013 with an increase in output of 1.6 per cent, albeit down slightly from the 2 per cent rise forecast before the cuts.
The public housing sector will be hit hard over the next four years, according to the new CPA forecast. Output will fall by 13 per cent in 2011, 15 per cent in 2012, 9
per cent in 2013 and 7 per cent in 2014.

This follows a 74 per cent real terms cut in the communities budget at the CSR. The infrastructure sector will receive an incredible 20 per cent rise this year as the effects of the previous government’s stimulus spending continue to flow. This will be followed by a 3 per cent rise in 2011, and a further 4.3 per cent rise in 2012.
But it will see more modest growth of 2.9 per cent in 2013, 2.8 per cent in 2014 and 5.4 per cent in 2015 as spending, particularly on roads, declines.

The education and health sectors will both suffer falls in output over the next four years. Although the offices sector is forecast to enjoy rises of 3 and 15 per cent in 2011 and 2012 respectively, this is down from previous expectations of 6 per cent followed by 25 per cent.

“The effect of the spending cuts on the private sector means the private sector recovery is slower as well,” said CPA economics director Noble Francis.
He said the government had been “a little optimistic” to expect that the private sector would be able to pick up the economic slack left by public sector cuts. Although
there has been a resurgence in office work in London, the recovery has yet to take hold elsewhere.

Total government capital spending will be slashed from £68.7 billion in 2009/10 to £47.2bn in 2014/15, chancellor George Osborne said at the CSR.

However, from 2013 to 2015, the commercial, rail and energy sectors will grow rapidly, says the CPA, boosted by spending on nuclear, and renewable energy projects, Network Rail station refurbishments and Crossrail. Private housing starts will grow 5 per cent in both 2011 and 2012.


Readers' comments (1)

  • Our construction output forecast for 2011 to 2014 is similar, with a decline in 2011, but sees slight growth in 2012 (+0.3%). This is earlier than the CPA predict, the growth being mainly fuelled by the private housing, industrial, infrastructure and commercial sectors. This goes towards balancing the double digit declines in output in the public sector over the next few years.

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