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Watts Bulletin (Issue 129)

Welcome to the July issue of the Watts Bulletin. There was considerable confusion over construction industry performance during the first part of the year, when conflicting figures elicited calls for the way construction figures are reported to be revisited. The latest forecast from the Construction Products Association (CPA) paints a picture of an industry that is something of a curate’s egg: good in parts, but not that good. In general, prospects for significant improvement are on hold, says the CPA. The private sector will not simply pick up the slack from the fall in public sector spending of its own accord. As Noble Francis, the CPA’s economics director, says, if construction is to play its part in the economic recovery the government must put its money where its mouth is, create some incentives to stimulate growth and release the funding for capital projects that has been promised.

In this issue we also look ahead to new editions of the Joint Contracts Tribunal’s (JCT) suite of contracts, due for publication in September in advance of new legislation in October. BRE Global has also produced its 2011 version of BREEAM for new construction, now ready to download, and the RICS has issued guidance on completion of construction projects.

Watts Bulletin (Issue 129)

Industry may not recover for two more years, warns CPA

Construction activity will continue to decline for at least another two years before any significant recovery, according to the latest forecast from the Construction Products Association (CPA). However its economics chief believes beleaguered product manufacturers are being kept afloat by healthy export activity.

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Commenting on the latest Construction Industry Forecast published in July, Noble Francis, Economics Director of the CPA, described the industry as “volatile”. Some sectors have seen an increase in activity, although this is from a very low base, but overall prospects for the next few years are expected to be poor. According to the forecast, output during 2011 is expected to fall by 0.5%, with a greater fall of 2.85% next year. In 2013, output is expected to be “broadly flat with just 0.2% growth” before a return to growth of 3.4% in 2014.

The government has identified construction as a key driver to help boost economic recovery and to enable private sector work to replace publicly-funded projects. However there is little evidence to date that private sector work will make up for the decline in public sector activity - which the CPA expects to fall by 24% by 2014.

On a more positive note, construction products sales increased for the second consecutive quarter, with the total number of suppliers exporting goods increasing by 18% compared to the first quarter of 2011. This trend will be welcome news for a sector which, according to Experian (source: Building), is currently experiencing the highest rate of insolvency among UK businesses.

There will also be an increase in activity in the housing market, with private housing expected to have grown by 62% in the period up to 2014. However until 2013, less than half the number of homes needed will be built, and this is expected to significantly increase the difference between supply and demand. The result will be an additional housing gap of more than 600,000 homes in just five years.

In light of these figures, the CPA is calling on the government to do more than pay lip service to the importance of construction to the UK economy. Francis said, “If [the government] wants private construction activity to play a significant part in the recovery, then it must do more to help stimulate the industry, such as accelerating changes to the planning system, improving bank lending, reducing regulatory burdens and increasing the likely success of the Green Deal...by reducing VAT on Green Deal activity in line with the VAT charged on energy consumption.”

“It would also help if the government actually spent on construction what it proposes,” he added.

For more information go to www.constructionproducts.org.uk 

The Watts Bulletin is the technical companion to the Watts Pocket Handbook, the essential guide to property and construction, as used by professionals since 1983.

Watts Bulletin editor: Trevor Rushton.