UK hit by public spending cuts

Public spending cuts have hit the UK construction industry, according to a survey by the Construction Products Association, which said that this confirmed the fears the industry had warned about for some time.

It said the latest Construction Trade Survey showed that the cuts announced by the government last autumn had finally started to impact on construction activity.

The Construction Products Association added that while these latest indicators reflected the scale of government retrenchment in the public sector, private sector recovery was being restricted by "anaemic economic growth, a beleaguered consumer sector and the continuing reluctance of financial institutions to increase their exposure to the built environment".

Noble Francis, economics director, said, "Construction activity fell in most sectors during the second quarter, with only a small rise in private commercial activity preventing even sharper falls.

"The greatest falls were seen in public non-housing, such as education and health, and with the public sector spending cuts already taking effect, this will only exacerbate the situation."

He added that at a time when tender prices and profitability remained under extreme pressure, price inflation from persistently high materials costs was making operating conditions "extremely challenging" for firms throughout the construction industry.

Some manufacturers during the second quarter of 2011 benefited from the attractiveness of the UK£ in relation to both the € and US$, and increased their export sales. This resulted in an additional 18% of manufacturers turning to overseas markets compared with the previous three months.

Construction Products Association felt this was a welcome bounce back from the poor conditions experienced during the winter months, but that there remained a great deal of concern about the year ahead as the full impact of the public sector cuts had not yet been seen. It forecast that UK construction output would fall in 2011 and 2012.

"The government has stated that construction is at the heart of its growth strategy for the UK economy and, as it accounts for around 10% of the UK's economy, it is vital that investment in essential schools, hospitals and housing is maintained at levels that will provide the basis for economic recovery," said the Construction Products Association.

Stephen Ratcliffe, director of the UK Contractors Group, said, "Market conditions remain tough. Government has not just cut back on capital investment. It is also reviewing many programmes - such as school building - and is devolving responsibility to local decision makers."

He said the picture on forward public investment remained unclear. "Clarifying this is the single most important step government could take to help the industry ride out these tough times."

Julia Evans, chief executive of the National Federation of Builders, added, "It is still of great concern to members of the National Federation of Builders that lending to construction continues to fall, dampening the prospects of a private sector-led recovery.

"Construction experienced the highest rate of insolvencies of any industry in the second quarter, a sure sign that weak demand, extremely competitive pricing and rising costs are all having a destructive effect on the industry which will continue to be felt for years to come."