Government spending on new schools and hospitals will be key driver for construction growth over next 12 months.

Growth in the building industry over the next 12 months will be held back by negative growth in the new office sector and a sharp slowdown in the construction of new homes.

The Construction Products Association warned that the rate of growth in private sector construction will fall by 0.7% in 2005. It said that public spending on health and education will be the key to industry growth but warned that public sector construction will also slow from 6.4% to 3.9%.

The CPA predicted growth in new private housing will halve from 12% to 6% in 2005, and fall back to 1% next year. And despite an increase in confidence among developers the decline in the new office market is expected to continue following negative growth of 7% in 2004.

The growth rate of commercial projects is also expected to fall from 4% in 2004 to 2.2% this year.

Michael Ankers, the chief executive of the CPA, said: “Although we remain confident that the industry will avoid recession, this is critically dependent on government continuing to deliver its proposed investment programme in the built environment.”