Contrasting UK construction outlook

By Helen Wright14 May 2012

Figures from the UK's Office of National Statistics (ONS) showed that construction output in the country fell by 5% in the first quarter of 2012, considerably worse than the estimate of -3% that ONS previously indicated for GDP in the first three months of the year.

But while the first quarter ONS figures sparked further pessimistic forecasts, they contrasted with the latest Construction Market Survey from the Royal Institute of Chartered Surveyors (RICS), which presented a different picture.

RICS said its survey showed that activity levels in the construction sector actually edged upwards in the first three months of the year - 8% more chartered surveyors across the UK reported increases rather than decreases in workloads, according to the results.

And significantly, 21% more respondents expected workloads to rise over the coming 12 months, the most positive RICS reading since the early part of 2008.

In stark contrast, the ONS figures appeared to show that the first quarter construction recession in the UK was deeper than previously estimated.

Commenting on the ONS statistics, Noble Francis, economics director at the Construction Products Association, said, "The construction industry is now firmly back in recession and, although there are some areas of growth such as private housing, the overall picture shows an industry clearly suffering from the effects of public sector cuts.

"Public housing output fell 11% during the first quarter of 2012 and public non-housing, which covers education and health, fell 7%. Equally worrying, although government expected that the private sector would fill the void, the figures show that this was not the case. Construction output in the private sector also contracted in the first quarter, suffering from poor confidence and lack of lending. Private commercial, the largest construction sector, fell by 7.1% during the period."

Steve McGuckin, managing director at programme management and construction consultancy Turner & Townsend, echoed Mr Francis' concerns.


"Frankly it makes for uncomfortable reading, with levels of both output and new work down on the same time last year, and on the last quarter of 2011. Most disappointing is the steep fall in new infrastructure work, though this is perhaps unsurprising given the government's drive to cut the deficit."

However, Mr McGuckin conceded that there were some reasons to be positive. "We've seen a steady expansion in the commercial sector this year, with growth focused on South East England, albeit with pockets of activity around the North and North West."

But he said recovery would not happen overnight. "This is a long-lag business, where it frequently takes two or more years from the time a project starts moving to construction beginning. So we predict the rest of 2012 will be tough, with volumes not picking up significantly until well into 2013," Mr McGuckin said.

Cautious forecast

And while the RICS survey returned an altogether more positive sentiment, RICS chief economist Simon Rubinsohn was also cautious on prospects for 2012.

"There are of course still significant hurdles to overcome. Finance for development remains a problem as does macro economic uncertainty. On top of this, the public sector will continue to scale back its capital spending programme putting ever more pressure on the private sector and institutional investors to deliver," he said.

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