The worst of the slump may just be over, but we’re still becalmed in the doldrums. R&M, though, has done surprisingly well, says Experian Business Strategies
01 / Overview
In the nine months to September 2009, construction output totalled £73.5bn in 2005 prices, almost 12% lower than the same period in 2008.
However, the figures for the third quarter of the year were unexpectedly strong: output rose 2% quarter-on-quarter largely because of a buoyant performance from the repair and maintenance (R&M) sector. Although new work output declined 4%, quarter-on-quarter, R&M output increased 10% compared with the second quarter of the year. This surprising rise does not fit with the pattern seen during the recession of the early nineties nor with evidence from the latest state of trade surveys. The strongest quarter-on-quarter increase was in the public non-residential R&M sector, which may reflect an attempt by public sector bodies to spend their allocated budget before the inevitable cut backs later this year.
The public non-residential new work sector was one of only two where output grew in the first three quarters of 2009 – it rose 26%, year-on-year, thanks to continuing work on the Olympic park and an acceleration in in the Building Schools for the Future programme.
Output also rose in the infrastructure sector, albeit at a more modest rate. Activity in the transport sub-sectors has largely driven this growth, with work going on site on projects such as the Thameslink upgrade, the M25 widening, the expansion of the Manchester Metrolink and the completion of the M74 south of Glasgow.
The weakest performance was in the industrial sector: output for the nine months to September 2009 fell 37%, and the outturn in the third quarter reached a 26-year low of £604m. This sector has been hit by a double whammy: the end of the warehouse boom and the continuing effects of the global recession.
The private housing sector has also been badly affected, with the credit crunch restricting the supply of mortgages, and the widespread fall in consumer confidence crippling demand for home ownership. Output in the sector fell at an annual rate of 30% in the first three quarters of 2009.
Public housing output contracted 6%, which was surprising given that the 2008-11 Affordable Housing Programme is well under way. Despite higher levels of public funding, the sector has suffered from delivery problems as the near-collapse in the number of private housing developments affected what could be achieved through section 106 agreements.
Funding through private sources has also become more difficult to obtain. Recent evidence suggests that although the worst may be over for some sectors, there is still a way to go before recovery sets in for others.
02 / New work output, 03 / R&M output, 04 / New work orders
(See corresponding graphs)
05 / 2010-12 forecast
The chart (right) presents sectoral forecasts for 2010 to 2012. The most buoyant sector is expected to be private housing, where output is expected to rise 26% between 2010 and 2012. The tentative signs of recovery that have been seen will strengthen in 2010 and there will be a more sustained recovery in demand. The infrastructure sector is also forecast to fare well, with work on a number of projects to continue throughout the period to 2012.
The public non-residential sector is likely to fare the worst. With government funding cuts inevitable, investment in health and education, among others, will suffer. Output in the sector is expected to fall 16% between 2010 and 2012.
06 / Regional new work output
New work output declined at double-digit rates across all 14 regions and nations in 3Q09. The most marked fall was in the North-east (NE), with output falling 35.7% from a year earlier, followed by the North-west (NW) (26.9%) and the South (S) (24.8%). In contrast, the rate of decline in Berkshire (BRK) was a much weaker 12%, while the year-on-year contraction in the East (EA) was 13.7%.
07 / Regional R&M output
R&M output held up better than new work across the country, with six of the 14 regions reporting year-on-year growth in 3Q09. The strongest increase was in the South-west (SW) where R&M output jumped by 20.4%; the East (EA) also had a marked rise of 18%. Other regions that grew included Berkshire (BRK), the South-east (SE), Kent, Surrey and Essex (KNT) and South (S); output in the West (W) declined 0.1%. The North-east (NE) fared badly, as output fell 33.4% in 3Q09.
08 / Regional new work orders
The steepest fall in new work in 3Q09 was in Greater London (LON), where it more than halved compared with a year earlier. The North-east (NE) was also badly hit, down 41.4%, as was Bedfordshire (BED), down 36.5%) New work orders rose, year-on-year, across six regions: WM (West Midlands) (30.1%), followed by Kent, Surrey and Essex (KNT) (21.3%) and North-west (NW) (21.1%). Growth came in the West (W), Yorkshire & Humber (YH) and East (EA).