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Construction defies economic gloom

THE UK CONSTRUCTION market is still set for at least three years of growth, according to the latest forecasts from one of the industry's leading economists due to be released next month.

Construction Forecasting & Research has downgraded its last 1998 forecast, released in the spring, from a 3.3% increase in output to 2.3%.

However, this is simply due to orders taking longer to feed through. As a result the 1%

rise forecast for 1999 has been pushed up to 1.8%.

Best news of all comes in 2000, when CFR believes increased public sector building work will boost output by 2.3%, compared to a modest 1.2% predicted earlier this year.

And over the three years, CFR is now predicting a 6.4% increase in output, 0.9% higher than its spring forecast - made well before talk of global economic meltdown became widespread in the national media.

The latest CFR forecast is just one of a rash of industry statistics which appear to suggest that construction, while in for a rocky ride in some sectors, is not heading for a early 1990s-type slump (see boxes).

CFR economist Jim Turner said that overall, nothing had happened during the last six months seriously to undermine construction growth forecasts for the next two years.

He explained: 'The Chancellor may have halved growth forecasts for GDP [from 2% to 1%], but he is still talking about an increase, not a fall.'

CFR has made no changes to forecasts for infrastructure output. It still expects output to fall by 2% this year, hold steady in 1999 and rise 5% in 2000 as large projects like the Channel Tunnel Rail Link and the West Coast Main Line upgrade get going.

Turner said: 'The infrastructure market will increasingly come to rely on relatively few mega-projects.'

CFR is predicting that new construction output will rise 3.2% this year, 0.8% next and 1.6% in 1999 (see chart, below). This overall increase of 4.6% is 0.3% higher than that forecast in the spring.

However, Turner supported the view that this period of growth will feel very close to a recession for many. 'Because of the productivity gains the industry is achieving, rising workload will create very few employment opportunities,' he claimed.

CFR's relatively bullish approach was endorsed by the industry's other leading forecaster, the Building Materials Producers. Economist Alan Willen said the BMP had not started work on its December forecast, but thought there was likely to be only a marginal decrease in predictions.

BMP forecast a 3% rise in construction output in 1998 and 1999 and a 2.5% increase in 2000.

Willen said: 'The UK economy is still fundamentally strong. It is worth noting that our last forecasts were made on the assumption that interest rates would remain high for the rest of year.' The Bank of England cut interest rates by 0.25% last Thursday.

ICE economist Owen Simon dismissed talk of a serious recession in UK construction as 'tosh'. He claimed that about two thirds of the infrastructure market was 'outside market forces, in the way housing is not'.

Simon explained that the Government's Comprehensive Spending Review had tied departments into three year spending plans and that the investment of privatised operations like Railtrack and the water companies were driven by regulatory pressure.

Alastair McLellan

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