‘Volatile’ UK market

06 June 2011

Total volume of new UK construction orders in the first quarter of 2011 fell by 23% compared with the fourth quarter of 2010, figures from the government's Office for National Statistics (ONS) have shown.

With this figure following a 26% increase over the quarter before that, the Construction Products Association said that it showed that the quarter-on-quarter situation was "very volatile".

RICS (Royal Institution of Chartered Surveyors) said the figures painted "a disturbing picture for the outlook for the sector".

ONS figures show that the total volume of new construction orders in the first quarter fell by 18% compared with the same period in 2010.

All construction industry sectors showed a negative growth in new orders in the first quarter compared with the fourth quarter. In the case of public and private infrastructure, the volume of orders in the first quarter of this year fell by 48% on the previous quarter, and by 45% compared with the same period a year ago.

Noble Francis, economics director of the Construction Products Association, said that because of the volatility, to achieve a more accurate picture of the longer trend it was better to look at the orders over the past 12 months and compare these with the previous 12 months.

He said, "Over this period, orders were 7% down with significant falls in the public housing, education and health and infrastructure sectors, only partially offset by rises in private housing, commercial offices and retail sectors.

"Looking at orders in the latest 12 months compared to the previous 12 months, public housing orders were 8% lower, education and health orders were 18% lower and infrastructure orders were 32% lower."

He said this indicated the start of the public sector spending cuts that the association had expected since the Comprehensive Spending Review.

"We would expect this fall in orders to feed through into construction output from the second half of the year," he said.

"On the plus side," he continued, "private housing orders during the last 12 months were 45% higher than during the previous 12 months. Commercial offices, retail and leisure orders were 6% higher over the same period. Both of which indicate a continued recovery in private sector construction.

"However, the sharp nature of the public sector spending cuts appear as though they will outweigh private sector recovery in the short term and, as a consequence, we forecast that construction output will fall in 2011 and 2012, by 1% and 2% respectively, before private sector recovery starts to drive growth in the construction industry as a whole."

Simon Rubinsohn, RICS chief economist, agreed that with volumes of orders received at their lowest since the first quarter of 2009, to some extent the poor performance could be blamed on the volatile nature of the sector.

"But," he said, "after the more upbeat tone to sentiment as reflected in the latest RICS survey of the sector, today's numbers provide a timely warning that the backdrop for the construction industry remains challenging as public spending cuts bite, the private sector only recovering in some areas and development finance still restricted."

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