Bovis-commissioned report predicts low interest rates and more investment in infrastructure.
Long-term low interest rates and higher spending on construction will be the main effects of Britain joining the single European currency, says a pamphlet to be published by the Action Centre for Europe later this month.

The report, UK Construction and the Euro, was commissioned by Bovis Construction and written by former Building business editor Peter Cooper. Advance copies have been circulated to all members of the Major Contractors Group.

“The modern United Kingdom spends around 9% of GDP on construction, or £60 billion per annum,” says the report. “The average level of expenditure is nearer 12% on the Continent. This represents a chronic under-investment in infrastructure.”

The report argues that the Franco-German model of economic management, with an independent central bank, has controlled inflation better than the British system. Until recently, UK interest rates were in the hands of politicians. Lower Continental rates have led to higher levels of public and private sector investment in construction.

“On one estimate the British Government could cut 2p off income tax due to lower Euro-zone borrowing costs. That would be enough to pay for the construction of 25 hospitals,” says the report.

“Now that the British Government has decided to prepare for entry into the Euro, although it has not yet taken the decision to enter, there has been a notable shift in the management of the economy. Most significantly, the Bank of England is responsible for setting interest rates, and not the Chancellor.”

The report says the UK economy will become less prone to boom-bust cycles and investors will become more confident about putting money into long-term projects. “But of course, UK interest rates are still much higher than in the Euro-zone, and final accession to the Euro

will be required to lower interest rates to European Central Bank levels,” it adds.

In his foreword, Bovis Construction chairman Sir Frank Lampl says the euro will trigger a wave of cross-border mergers, takeovers and acquisitions that will increase demand for construction services. At the same time, it will increase the need for investment in telecommunications, transportation infrastructure and utilities.

“It would, therefore, appear that the conclusion that the Euro will have a more positive impact than a negative one on the construction industry is correct,” says Sir Frank.