Public sector cuts affect new orders in UK

By Sandy Guthrie07 September 2012

The UK's total volume of all new construction orders in the second quarter of 2012 is estimated to have increased by 0.2% compared with the first quarter, according to figures from the UK's Office for National Statistics (ONS).

It said that this was 11.1% higher than the figures for the second quarter of 2011.

The ONS found that compared with the first quarter of 2012, there had been a large increase in the category of public other new work, which grew by 31.5%. However, there were decreases in infrastructure new work (20.4%) and private industrial new work (13.3%).

The volume of new orders for infrastructure was estimated to be 38.5% higher in the second quarter of 2012 than in the same period a year earlier.

The UK's Construction Products Association said the figures showed that new orders for construction remained at a depressed level in the second quarter of 2012, despite having risen 1.5% in the first half of 2012 compared to the same period 12 months earlier.

It pointed out that new orders remained 40% lower than the pre-recession peak.

Noble Francis, economics director at the Construction Products Association, said, "The adverse effects of the public sector cuts are clearly highlighted in these ONS figures.

"New orders for public housing in the first half of the year were 24% lower than a year earlier, and orders for public non-housing, which covers education and health, were 19% lower than a year earlier."

He said the picture was brighter for infrastructure, where new orders in the first half of the year were 47% higher than a year earlier.

Large projects

He added that this would feed through over the next few years through large projects such as the Crossrail and Thameslink rail projects in London.

"However, this is not enough to offset the fall in orders in the public sector. In the private sector, new orders for commercial construction rose 1% in the first half of the year, which points towards a subsequent rise in output in 12 to 18 months' time, given the long lead time in the commercial sector," said Mr Francis

He said it was imperative that the government did more to stimulate construction and the economy.

"Despite numerous announcements and initiatives from government over the past 12 months, the private sector recovery remains sluggish, as public sector investment falls sharply.

"The economic recovery will only return when investment is made, therefore government must decide on its priority between its current and capital spending while at the same time provide a robust model to attract private finance."

Steve McGuckin, UK managing director of the programme management consultancy Turner & Townsend, said, "The headline number is positive, but the good news is thin.

"Most of the quarter-to-quarter growth is being delivered by the public sector. While the extra work is good for the construction industry, it isn't a sign of growth or confidence in the economy as a whole."

He added, "The increase in new orders has to be welcome, but the fact that the growth is primarily coming from the public sector means it may not last."

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