Good news for builders but the government shouldn't be too quick to pat itself on the back. The Construction Products Association said that growth would have been higher still if the government had stuck to its proposed construction spending plans.
A damning CPA report says that billions of pounds pledged by the government towards new public buildings and infrastructure are not being spent fast enough.
The report found that the government had missed construction spending targets in five main sectors and had only come close to achieving its targets in two of them: school buildings and roads.
The report tracks the delivery of the government's spending promises in social housing, school buildings, healthcare buildings, roads and railways.
The low number of new hospitals being built illustrates how the government has slipped behind schedule. According to the CPA report, work commenced on only 19 of the 31 hospitals scheduled to start in the first two years – 2001 to 2003 - of its hospital building programme.
Construction minister Nigel Griffiths this week cited red tape and skills shortages as the prime reasons for the under-spend. Griffiths said that the construction industry was facing a 380,000 skills shortfall within four years.
In an attempt to close the skills gaps the MP for Edingburgh South announced last week that the government had committed itself to investing a further £300m in training for the construction industry. The unions have already experienced some of Griffiths largesse, receiving £3m to help them implement training programmes.
The government has also made more funds available for procuring land. In a Labour conference debate deputy prime minister John Prescott announced he had agreed to build 1,600 new affordable homes on government land in the South East. Prescott also said that the first phase of £500m of funding for the housing market renewal fund, which is earmarked to invest in areas of derelict housing, would be released this week.
The sharp increase in the rate of growth in GDP will bring a glow of satisfaction to Gordon Brown. His annual GDP growth prediction of between 2 and 2.5% seemed wildly optimistic at the start of the year – growth was only 0.2% in the first quarter – but the upswing in Q2 puts his target within reach.
This growth spurt is important because it means that Brown will suffer a shorter tax shortfall this year than expected, which means that the Treasury is likely to leave public sector spending levels untouched.
The government's next trick is to make the investment stick. There are worrying signs that much of the government's money is being spent on larger public sector salaries. In some cases salaries for Housing Associations CEOs are passing the £200,000 mark.
If the government wants to get value for money out of its billion-pound spending spree, it must get a firm grip of the public sector and stop wages and costs spiralling out of control.