Construction sector sees its first recession for more than a decade

The last 12 months have proved difficult for the construction industry with output falling by 1·3%. This slump ends 11 years of uninterrupted growth in the sector. However, the Construction Products Association (CPA) is forecasting a slow recovery during 2006 and continuing through 2007 driven by a turnaround in government investment.

Commenting on the forecast, CPA chief executive Michael Ankers, said: "In 2005 the construction industry was hit by higher energy and raw material costs, weaker private sector activity and a fall of around 3% in government investment in the built environment. In 2006, however, we expect to see a modest 1% pick-up in overall construction output, largely due to a recovery in public sector investment."

The CPA expects to see a more substantial growth in construction output during 2007 and 2008, at around 3% per annum. This is due to higher UK economic growth lifting private sector activity and the government pressing on with plans from the current spending review.

While a sustained recovery in office development activity is forecast for the next three years, investment in retail and entertainment premises is expected to weaken. Home improvement expenditure is also expected to fall this year, with private housing repair, maintenance and improvement falling by 1% before recovering by 3% per annum in 2007-08.

Increased investment in regional distribution facilities is set to lift industrial building work during 2006. Government investment in education and health is expected to increase with a good flow of PFI projects coming on-stream, while social housing projects will sustain a good element of the sector, with a forecasted rise in the number of new public housing starts to 26 000 in 2008.

From 2008 onwards major investment in the 2012 Olympic Games is expected to drive industry output.