CONSTRUCTION GROWTH TO OUTSTRIP UK ECONOMY

24 January 2007

Overall construction growth is set to outpace that of the UK economy over the next three years, according to the Construction Products Association, whose industry forecasts will be launched on Wednesday, this week at the Forecasting for Construction conference in London.

Although public sector work is finally picking up after two disappointing years, it is the private sector that is forecast to be the main driver for this growth, as it benefits from the strong office market and increased investment by both water and energy industries.

However, a cooling in the housing market is forecast to hold back new house building activity and limit the recovery in home improvement works over the coming year.

Speaking on behalf of the Association, Allan Wilén, Economics Director, said; “Overall the industry’s prospects appear brighter than for some time.  After two lean years, industry growth is expected to out pace that of the wider economy, even though growth in Government funded projects is likely to be more modest than that seen earlier in the decade due to the tight 2007 Comprehensive Spending Review expected later in the year.

Overall there is increased confidence that things are looking better and we forecast that construction industry growth will strengthen to 2.7% this year, supported by a sustained rise in new work and a modest recovery in repair and maintenance activity.  A further strengthening in industry growth to 3.0% and 3.5% is forecast for 2008 and 2009 respectively.”

Other key points in the Association’s forecasts are:

• 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.
• 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.
• 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 in health related output is predicted over the forecast period led by a growth in PFI projects
• After four years of decline, the infrastructure sector is expected to mark a turning point this year as the forecast increase in investment by the water and energy industries will lead to a sustained recovery in overall sector output.
• The Highway Agency’s investment programme for the strategic road network is expected to initially stabilise road construction activity during the coming year and subsequently recover during 2008 and 2009, as the Agency’s work programme gathers momentum.