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Construction output hits lowest level since 1990s

Construction output has fallen to its lowest level since the summer of 1999, official government figures have revealed.

The estimated total volume of construction output in the third quarter of 2012 fell by 2.6% compared with the second quarter of 2012, a fall that continues the decline first seen in the third quarter of 2011.

It means the estimated level of the total volume of construction output in the third quarter of 2012 was the lowest since the second quarter of 1999.

There were falls in seven of the nine sectors measured, with the largest decrease being in private commercial, which fell by 8.2%. New infrastructure bucked the trend, showing a quarter on quarter increase with a growth of 9.9%. However, this quarter-on-quarter growth has not brought the output of this sector back to
the levels seen in late 2011. Compared with the same quarter a year ago, new infrastructure work fell by 11.3%.

The gloomy figures come a day after Britain’s biggest contractor Balfour Beatty issued a profit warning alongside a bleak view of the market in 2013.

Engineers said it meant those thinking next year would be better than 2012 needed a drastic rethink.

“Many in the industry had hoped that if they could just limp through 2012, next year would be better. But with the sector continuing to contract, the optimists are being forced into a drastic rethink,” said Turner & Townsend UK managing director Steve McGuckin.

“Yesterday Balfour Beatty, the country’s largest construction firm by sales, was forced to issue a profits warning after its order book shrank by 4% in the third quarter. If well-run and diversified construction companies like that are struggling, life is becoming all but unbearable for the industry’s mid-sized firms.

“As the big players are being forced to pitch for smaller projects, those in the “squeezed middle” are having to slash margins to negligible levels - and in the most extreme cases, some firms are pitching for work at below cost, simply to keep cash-flow coming in.

“Such desperate measures are clearly unsustainable, and the industry as a whole is having to adapt to a tough environment which is still showing no sign of improving.”

“The rate of decline shows no sign of slowing down and the question is what can anyone do to arrest the decline?” added Aecom economist David Crosthwaite. “Both public and private sector seem unwilling or unable to invest in built assets and until this position changes I’m afraid it’s likely to be more of the same.”

Today’s figures, published by the Office of National Statistics, are mostly estimates in constant (2005) prices, seasonally adjusted. Total output for the quarter is put at £23.8bn, with new infrastructure work put at £2.8bn.

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