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Construction slows faster than rest of the economy

Construction is one of the worst performing sectors of the British economy, despite offering the best opportunities for economic recovery, according to new research published this week.

UK Gross Domestic Product (GDP) fell 0.4% in the third quarter of 2009, but construction output fell almost three times as much with a 1.1% drop. Britain is now in its deepest recession since the 1930s, after GDP declined for six successive quarters.

“The continued weakening in construction activity reflects the sharp falls recorded in projects starting on site during 2008 and the first half of this year,” said Allan Wilèn, economics director of construction market research specialist Glenigan.

“The continued weakening in construction activity reflects the sharp falls recorded in projects starting on site during 2008 and the first half of this year.”

Allan Wilèn, Glenigan

“The falls in output in the construction and service sectors are likely to have particular implications for the pace and shape of the eventual recovery. Accordingly, the decline in output and the prospect of further job losses and weak earnings growth over the coming months is likely to dampen any recovery in consumer spending next year,” he said.

There was better news for the civil engineering sector with projects and public building starts above last year’s levels, according to Glenigan’s September Index.

The UK Contractors Group and employers body the CBI have published research showing that construction spending stimulates the strongest growth and employment.

It shows that every pound spent on construction leads to an increase in GDP of £2.84 of which £1 goes into construction output and £1.84 to the wider economy.

Long-term improvements

Some areas may offer greater returns, such as in building schools, where economic benefits can be between £3.87 and £5.04 due to long-term improvements in education services.

“This report outlines the essential relationship between the construction sector and other parts of the economy, as well as its important contribution to numerous other social and economic objectives, including regional development and employment,” said CBI deputy-director general John Cridland.

“A strong economy needs fit-for-purpose schools and hospitals, and it will be the construction industry that builds the new transport and energy infrastructure needed to shift to a low-carbon economy.”

The outlook for construction next year is more optimistic with figures for project starts in the three months to September the same as last year.

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