The Construction Products Association has warned that the construction industry is heading for recession

Construction output fell 1.3% over the first nine months of the year, DTI statistics revealed this week.

The drop has prompted the CPA to make the warning, as fears grow in the wake of the pre-Budget report, that chancellor Gordon Brown is to slow public spending to try to put public finances back on track – a move that will raise further concerns for the industry.

Allan Wilén, Construction Products Association economics director, said: “The data reveals a much sharper decline in construction activity at the start of 2005 than previously estimated by DTI. The industry also appears certain to endure its first annual decline in output since 1994.”

DTI figures show that construction output during the third quarter was 0.1% down on the previous year. Within this total, public new housing output was down 11%, and public non-housing work fell 10%. Public housing repair and maintenance activity was down 5% on a year earlier. Infrastructure output was down 10%, but commercial output was 1% higher than last year.

Wilén said he was particularly concerned that the fall in construction activity had been led by a weakening in government-related work. He said: “The CPA has found that government is falling behind in the delivery of promised investment in a number of key areas including school building, health facilities, social housing and transport infrastructure. The latest construction data suggests that the gap is widening rather than closing.”

The fear will be compounded by an assessment of this week’s pre-Budget report by independent think tank the Institute of Fiscal Studies. The IFS said Gordon Brown was pencilling in total government spending increases averaging just 1.8% in real terms until 2011, less than half recent rates.

Chancellor Gordon Brown’s decision not to allow residential property to be invested in self-invested personal pensions (SIPPs), has caused anger in the housebuilding industry. The chancellor had been expected to go ahead with the tax-efficient vehicle, which was due to be introduced on 6 April 2006. Property consultant Savills had estimated that about £6bn a year would be invested in SIPPs.

Tim Hough, chief executive of Miller Homes, said it was one of the biggest shocks in the pre-Budget report. Hough added: “It was coming under criticism, but we are surprised the chancellor has pulled the plug at this late stage.

I felt it was something positive that might have given the sector a bit of a filip."