The message from this quarter’s briefing is pretty clear: infrastructure, public non-residential, London and the south of England are the sectors and places to be. Experian’s Business Strategies explains
01 / Overview
The Office for National Statistics (ONS) has confirmed that the UK economy officially slipped into recession in the fourth quarter of 2008 (which was the second consecutive quarter of negative growth), so it is hardly surprising that full-year construction output and orders figures for 2008 also showed a decline.
Although the contraction in output was only 0.4%, the 16% drop in orders for new work during the year suggests that it may be a while before things improve, certainly for the construction industry as a whole. However, as always, the picture is different when looking at individual sectors.
The strong performers in 2008 were the infrastructure, with output growth of 15%, and the public non-residential sectors, with growth of 16%. Moreover, with orders in both sectors also increasing, the short-term outlook for infrastructure and public non-residential construction is not entirely gloomy.
On the infrastructure side, work on the M25 widening scheme is due to commence this year and Crossrail is planned to start in 2010. Not all the infrastructure work is in and around London, though. Work is continuing on the Edinburgh tram project and a number of others throughout the country.
In terms of the public non-residential sector, the strong performance is due to work continuing on the Olympics and the Building Schools for the Future programme.
The fate of the housing sector, both public and private, has been well publicised. Private housing output declined by 19% during 2008, and given that new orders fell 43% over the same period, it seems unlikely that a recovery is in the pipeline any time soon. Credit conditions still remain tough and confidence low.
On the public side, output fell 7% and new orders 17% as the effects of closer delivery links with the private sector were felt.
The industrial sector was another that was hit hard by the deteriorating economic conditions – output declined by 19% year-on-year in 2008 and new orders were 27% lower. The very bleak outlook for the manufacturing sector, despite the weakening pound, means capital investment here continues to look unlikely and industrial construction is set to contract further.
The repair and maintenance (R&M) sector provided some unexpected relief. Despite the fact that confidence continued to plummet and the expectations are that consumer spending fell in 2008, total R&M output rose by 2% – the fastest rate since 2003. This underlined a similar trend in retail sales, which, according to the ONS, have also held up well during the continuing turmoil.