Construction’s output growth rate is set to halve next year because of a sharp drop in key public sector markets, according to the latest RICS survey

The institution’s August construction output figures predict that growth in 2005 will be 1.8%, compared with a predicted 4.2% this year.

This main cause is a drop in demand for non-housing public building, a category that is taken

up largely by the health and education sectors. This grew 20% last year and is forecast to jump another 12% this year, but will be 4.4% in 2005 “and beyond”, according to the RICS.

The public housing repair and maintenance market, which is predicted to grow 5% this year, is forecast to fall nearly four percentage points next.

The RICS says decline in demand in these two sectors will be offset by a strengthening in other markets.

The commercial market is set to rise 2.5% next year after a 5.9% drop in 2003 and a 0.6% fall predicted for this year – although the RICS warns that this could be affected by the American economy.

“If the US economy were to falter once again this would inevitably undermine the outlook and pose a risk to any recovery in commercial building,” it says.

Infrastructure is set for a turnaround after a 10% drop last year. It will rise 0.7% this year and continue its partial recovery in 2005, with an increase of 4.9%.

Despite the drop in growth, the RICS claims construction cost inflation could still intensify in the current global climate. It says: “The renewed climb in oil prices and increased competition for other raw materials as the global economy picks up could result in current cost pressures worsening.”

  • The housebuilding and home improvement markets remain buoyant, according to a survey by the Builders Merchants Federation.

Total sales by builders merchants in the year to June 2003 were up 3.4% compared with the previous year. The increases were particularly sharp in the North, up 20.4%, and in Wales, which rose 15%.