The report predicts that the growth of construction output will decline between 2001 and 2003. The most significant drop will be in commercial work, which is expected to decline 7% next year (to £9.6bn) and 4.2% in 2003 (to £9.2bn).
The smaller industrial market will decline by a comparable amount: 7.5% this year (to £3bn) and a further 3.9% in 2002 (to £2.9bn).
The report, called Construction Outlook, says the drop in commercial work is particularly significant, as it has increased 80% since 1993. It says: "Commercial orders appear to have peaked, while business sector investment and employment growth have fallen. 2001/2 is likely to see the commercial market come face-to-face with the economic cycle." Commercial work will be hit by falls in profit, employment and investment across UK industry, particularly in the service sector. The industrial sector will be affected by a downturn in domestic and economic growth.
The research said: "The combination of rising input costs, fierce domestic competition, and an overvalued exchange rate have served to reduce profit margins and hence the incentive to invest." The outlook for construction output as a whole is rosier, thanks to increased public spending.
Total work will creep up 0.7% and 0.6% in 2001 and 2002 respectively, rising a further 2.6% to £60.4bn in 2003. Underpinning this are increases in public housing (up 12% to £1.1bn in 2001), infrastructure (up 4.4% to £6.1bn in 2001) and public non-housing (up 5.1% in 2001 to £4.3bn).
However, the report raises concerns about the government's ability to deliver its planned spending increases. This follows a £7bn underspend in 1999/2000 and a further underspend expected for 2000/1.
The report also questions housebuilders' confidence in their market, predicting that housing starts will slip from 156 000 in 2000 to 150 000 in 2001 and 2002.
n The Chartered Institute of Purchasing Supply's index of construction output was 57.6 in January (50 denotes no growth), the highest figure since September last year.