Experian Business Strategies reports on the still-slowing growth of the construction industry, as rapid inflation and insufficient demand affect market confidence and output

the contractor’s activity index stood at 53 in May, down from 55 in April. In June, it fell again to 52 – still growing, but only just. The orders index recorded a rise in June, whereas the tender enquiries index suffered a fall, leaving their respective indices at 64 and 54 points.

Firms were pessimistic about their short-term employment prospects, with the index falling one point to stand at 49. Optimism concerning tender prices, however, recorded a sharp increase; the index climbed six points to 63.

The Leading Construction Activity Indicator, which provides a short-term forecast of activity levels in the construction industry, indicates that growth in construction activity will continue over the next three months at a similar rate.

In 2004 price inflation in construction output was 7.3%. In the short term, prices are expected to continue upwards but at a more subdued rate. Overall, industry inflation is forecast to be 2.2% in 2005 and 1.9% in 2006.

From 2006 output price inflation will accelerate, with an annual growth rate forecast to exceed 3% between 2007 and 2010. Rapid inflation is expected in the infrastructure sector, with prices forecast to be 25% higher in 2010 than in 2005. Public housing and commercial construction output prices are also expected to increase substantially. Conversely, the current slowdown in the UK housing market will be a significant constraint on private housing output inflation over the forecast period.