The government’s investment in schools and hospitals provided a good start to the year for the construction industry

A joint report published this week by the Construction Products Association and the Construction Federation estimated that construction output was £20.5bn in the first quarter, 3.1% ahead of the same period last year.The rise was a result of higher government investment, which drove public sector building work and repair and maintenance work.

Through PFI, the government was also partly responsible for the growth in the commercial sector.

The tentative growth in confidence among commercial developers was in evidence this week when Land Securities, the UK’s biggest developer, said it was set to develop 33,445 m2 of office space next to Tate Modern on London’s South Bank.

However, the outlook for new housing and industrial activity was less positive, with output decreasing in those sectors.

Overall, the report said the outlook for the immediate future was broadly positive. It stated: “Building contractors’ order books and project enquiries indicate that growth will remain clustered around higher government investment in schools, health facilities and improvements to the social housing stock.”

More modest improvements among civil engineers and heavy material manufacturers were expected over the next 12 months.

However, the report also highlighted the risk posed by increases in raw materials and energy costs. It said: “Rising cost pressures are casting a lengthy shadow over this broadly positive outlook for industry workload.”

It stated that four-fifths of manufacturers have experienced a rise in unit costs of more than 5%. To cope with the increases, more than half raised their prices 5% or more in the past 12 months.

The industry was upbeat about prospects for the next 12 months, with 66% of those surveyed expecting to increase their output. Cutting red tape and easing the tax burden were the two main post-election priorities highlighted by contractors.