Survey says that public spending needs to increase to compensate for weak private sector activity.

Government investment will be needed to reverse last year's decline in output, according to a new industry report.

The Construction Industry Trade Surveys said that the subdued performance during the final quarter of 2005 confirmed the first annual decline in construction output since 1994.

The survey published by the Construction Confederation and the Construction Products Association said that uncertainties in the NHS hospital programme and transport infrastructure investment, coupled with growing pressure on public finances, meant that industry optimism could prove fragile.

Michael Ankers, chief executive at the Construction Products Association said: "A weakening in private sector activity, especially in consumer and housing market related areas, appears to have dampened overall construction product sales during the fourth quarter with lower heavy side sales offsetting continued growth in light side products."

Ankers said that product manufacturers were also facing a widespread rise in unit costs, driven by higher raw material and energy prices. He said: "Cost pressures have squeezed manufacturers' margins and are filtering through to selling prices."

Speaking on behalf of contractors, Stephen Ratcliffe, Construction Confederation chief executive said: "Much of the residual optimism is driven by an expectation of public sector work and it is more important than ever that the Government maintains its public sector investment programme and the delivery of the promised renewal of the nation's infrastructure.

"Our industry needs consistency, continuity and the security of long-term planned investment to maintain improvements in the training and development of its people as well as the improvements in the quality of life for the nation as a whole."

Key survey findings:

  • Building contractors reported modest growth during the fourth quarter
  • Overall construction product manufacturers reported a small decline in sales volumes.
  • Higher government investment lifted public sector building work and repair & maintenance work.
  • Industry anticipate modest growth over the coming year.
  • Both heavy and light side manufacturers have seen widespread increases in raw material and energy costs.
  • Widespread improvement in the availability of skilled site labour, including bricklayers, plasterers and carpenters.
  • Product manufacturers have on balance increased their investment over the last year.