Economic Information

The Construction Products Association’s latest construction industry forecasts were published on 17 June 2008.  They reveal that the industry will be significantly affected by the economic slowdown, with output contracting by 1.3% during 2008 and 1.6% during 2009, in line with the slowdown in GDP growth, which is forecast to grow at only 1.7% in 2008 and 1.2% in 2009 compared to growth of 3.1% during 2007.

However, within the industry forecasts, there is great variation among the construction sectors.  The economic slowdown has hit the financial sector hardest, reducing credit availability and increasing the cost of credit for companies and individuals.  House builders are finding it difficult to obtain finance and potential homeowners are finding it difficult to obtain mortgages.  As a result, the private housing market has been particularly badly hit and the Association’s forecasts now anticipate that there will be fewer new housing starts in Great Britain this year than in any year since 1945 and that any significant recovery will not now occur until the latter part of next year and into 2010.

Furthermore, Local authorities have increasingly looked to private developers to provide affordable homes through planning gain under section 106 agreements.  As a consequence, the downturn in the private market will impact negatively upon public housing, which is expected to contract this year before recovering in 2009.

After five consecutive years of output growth within the Industrial sector, the sector looks set for a period of contraction.  Recent years have seen considerable investment within the sector and this has led to a significant increase in output in the factories and warehouses sub-sectors.  As a result, there is little scope for additional growth within the sector.  The economic slowdown is likely to exacerbate the low demand for industrial buildings and, as a result, the sector is expected to fall 10% in 2008 with a 7% fall in 2009.

Some sectors, however, continue to be strong.  In the short term, commercial development will continue to grow as projects started in the last couple of years are completed.  However, after 2008, commercial development of offices and shops will be affected by the economic slowdown as corporate profitability and consumer spending slows.

Government finances are expected to be tight.  However, despite this, the Association forecasts that public sector construction spending is expected to rise considerably as it is unlikely that with less than two years to go to an election, that spending in key areas will be significantly cut.  In the 2007 Comprehensive Spending Review and 2008 Budget, the government identified key priority areas of spending that include education and health.  Key to growth in the education spending is the government’s £45bn Building Schools for the Future (BSF) programme over the course of 15 years.  In the health sub-sector, the government has committed itself to a 13% increase in capital expenditure per year over the next three years.

Future prospects for infrastructure appear bright, despite the global economic slowdown, with a number of major projects and programmes set to provide significant growth over the next five years, especially within the water & sewerage and rail sectors, which account for 42% of total infrastructure output.

Key points from the forecast include:

·         Total construction to fall by 1.3% in 2008 and 1.6% in 2009
·         Housing starts to 127,000, the lowest number of housing starts since World War II) in 2008
·         Industrial to fall by 10% in 2008 and 7% in 2009

Public non-housing to rise 12% in 2008 and a further 7% in 2009.