… but despite the chilly climate, a strong order book should carry the industry through

The economic backdrop against which these forecasts have been prepared is more uncertain than for many years.

There was a time when the construction industry was the first to suffer from cuts in capital spending. What we are seeing now, however, is the shadow falling over private housing, both new-build and repair and maintenance, over the next couple of years.

This will be balanced by growth in the commercial sector on the back of major schemes. The industry will also be supported by increasing government investment in its schools’ programme, a modest recovery in spending on infrastructure projects and the start of major projects for the Olympic Games and Stratford City. As a result, output is expected to rise about 1% in 2008 and 2009.

Looking to 2010-12, the prospects for the commercial sector are less bright as investors cut back once the large amount of commercial space in the pipeline is completed and let. This is expected to be counterbalanced by a recovery in the housing market and the start of infrastructure projects such as Crossrail and the M25 widening scheme. The consequence of all this is that growth in output is expected to remain at about 1% a year.

There are undoubtedly risks associated with these forecasts and we are assuming that the Bank of England will continue to lower interest rates throughout 2008. Failure to do so will undoubtedly delay any recovery in the housing market, while any cut back in consumer spending will hit the retail sector and the private repair and maintenance market.

Forecasts also rely on the government continuing to invest in education and health.