POSITIVE CONSTRUCTION GROWTH FORECAST FOR BROWN PREMIERSHIP

25 June 2007

The construction industry is set to enjoy sustained growth over the next three years, matching that of the UK economy, according to the Construction Products Association’s summer forecasts.

However an anticipated cooling in the housing market together with poor delivery of planned investment by the water industry and the Highways Agency will constrain growth, especially during 2008.

Speaking on behalf of the Association, Allan Wilén, Economics Director, said: “The industry’s prospects remain bright as Brown moves into Number 10.  After two lean years, industry growth is expected to quicken and to be more broadly based.  However this growth will not be uniform across all sectors. Higher interest rates are expected to temper both new house sales and home improvement work over the next two years.  In addition the pick-up in infrastructure output is forecast to be slower than previously anticipated, due to slippages in both water industry investment and the letting of major road schemes.

Never the less there is increased confidence that things are looking better and we forecast that construction industry growth will strengthen to 3.1% this year.  This will be supported by a sustained rise in new work and a modest recovery in repair and maintenance activity.  Whilst growth is predicted to slow temporarily to 1.8% next year, the industry is set to enjoy more robust growth of 3.1% in 2009 supported by a strengthening economy and a modest rise in government funded projects.”

Key points in the Association’s forecasts are:

• Public housing RM&I output is forecast to recover over the next three years. However, progress is likely to be limited by the Government’s waning enthusiasm for upgrading all social housing to its ‘decent homes’ standard by 2010;

• A sustained recovery in office development activity is forecast to underpin commercial sector growth over the next three years, with the Olympics also adding to workload from 2008;

• Increased investment in regional distributional facilities is set to help lift industrial building work during 2007;

• After two years of sharp decline, a modest recovery is predicted in health related output, led by a growth in PFI projects;

• Higher interest rates, greater consumer caution and a cooling in the general housing market are forecast to dampen private new housing and RM&I output during 2007 and 2008;

• Revisions to Highway Agency schemes will continue to depress road construction activity during 2007 and 2008, which is already at its lowest level since 1982;

• After four years of decline, lower road construction activity and a weaker than previously anticipated pick-up in water industry investment will limit infrastructure growth to 1% per annum during 2007 and 2008.