Higher materials prices contribute to construction bodies' gloomy outlook

Construction will remain in recession for the next two years - that is the gloomy verdict of the industry’s latest economic research.

A trade survey published by the Construction Confederation and Construction Products Association says that construction output is expected to shrink both this year and next, as the problems of the economic slowdown are exacerbated by rising prices of energy and raw materials.

Contractors involved in the survey reported that during the second quarter of 2008 output for the industry fell compared to the same time one year ago, with a net balance of 17% of contractors reporting a drop in construction output overall.

Contractors reported that output has fallen in all sectors compared to the first quarter, most notably in public housing. 48% of contractors reported falls in private housing, with a balance of 26% of contractors reporting a fall in output in public sector new housing.

Noble Francis, economics policy development director at the Construction Products Association, said: “The further reduction this quarter, although predictable, is of great concern for many parts of the industry.

“Increased energy costs and high demand for materials from countries such as China and India has led to consistent rises in material prices, which in turn is leading to a reduction in profit margins.

“Output is definitely falling in the private sector therefore it is essential that government spending is not significantly cut.”

The survey also warns that the tightening of government finances may constrain spending in the social housing, education and health sectors.

Stephen Ratcliffe, chief executive of the Construction Confederation, said: “Clearly the chill wind that has ripped into house building is beginning to blow through other sectors in the industry and contractors are reporting falls in output.

“Maintenance of the public sector investment programme is increasingly important for the well-being of construction.”