A range of predictions makes it hard to get a grip on what lies ahead, but construction watchers have been falling over themselves to tone down their early predictions following a series of setbacks in 1998, most linked to instability in the world economy.
Economists generally agree that after a good three years, the private sector, which has been the powerhouse behind UK construction growth, is about to go off the boil. The reasons for this are the expected fall-off in consumer confidence, combined with the drop in inward investment caused by global economic blues.
Construction Confederation economist Chris Nicholls predicts growth of between 0.5% and 1% in the industry. "I think the year is going to be difficult for construction," he says. "I wouldn't rule out the possibility of a recession, but it definitely won't be on the scale of the early 1990s." Both Nicholls and the Building Material Producers agree that government spending – including the private finance initiative – is the industry's great hope. The rush to finish millennium projects, the effects of devolution and the spread of PFI are all good reasons to be bullish about the public sector, they argue.
BMP economics director Allan Wilén predicts a 0.5% growth in construction output, jumping to 1.5% in 2000. He warns that 1999 is going to be tough. "It is essential that the government delivers, otherwise we are looking at a recession in the industry." Martin Hewes of forecaster Hewes & Associates is more pessimistic, predicting a 1% decline. He agrees that the public sector is going to become more important, but does not expect it to take up all the slack of the declining private sector. "The government traditionally accounts for about 35% of workload," he says. "If you rely on that, you're on a sticky wicket to begin with." This year's forecasts range from Cambridge Econometrics' 1.5% decline to Nicholls' rise of between 0.5% and 1%. All of them lag behind the Treasury's forecast of up to 1.5% growth in the economy as a whole.
As for 2000, the consensus is that there will be a gradual recovery. Says Nicholls: "The public sector is still going to be a pretty good area. We should also see some of the private sector coming back. A 'nervous recovery' might be the best way to describe it."
Sector by sector
- Housing starts to dip as confidence falls
- Fears of recession may hit starts further
Prospects in the private housebuilding market look less positive than in 1998. After a good two years, the main factor working against the market is the loss in consumer confidence. It remains to be seen whether three interest rates cuts in succession – making houses extremely affordable – will offset the decline.
John Stewart, an independent housing economist, accurately predicted 1998's starts at 153 000. He now predicts a shallow drop to 150 000 starts in 1999, bouncing back to 160 000 in 2000. "I'm probably a bit more optimistic than most," he says. "The optimism is based on the return of consumer confidence that followed November's interest rate cut. The only thing that can affect that is a recession, and I don't see it happening. The UK economy won't be going into hibernation next year." The most bearish outlook comes from Martin Hewes of Hewes & Associates, who predicts a drop to 140 000 starts.
In the public sector, construction analysts are hoping that the government's £800m in capital receipts will come through. And the BMP's Wilén says: "There is more cheer in the public housing sector because of the capital receipts initiative. Unfortunately, local authorities have taken a long time to draw up their plans and get action on the ground. We think it will start coming through." The consensus is that the housing repair and maintenance market will be hit by declining consumer confidence.
- Sector set to be buoyed by work in hand
- Output expected to decline in 2000
The commercial sector looks a mixed bag. Wilén expects office output to rise because of the large amount of work in the pipeline. "Looking further forward, I don't think the flow-through of projects will continue," he says.
He expects the leisure sector to remain strong, but predicts a slower retail sector.
Likewise, Hewes believes work already planned should keep the market reasonably buoyant this year, with decline beginning in 2000.
Repair and maintenance
- Slowdown expected as confidence declines
Opinion on this sector is mixed. Hewes predicts a slight slowdown in growth from 2.5% in 1998 to 1% in 1999, with it bouncing back to 2% growth in 2000. "We see it growing every year, mostly on the back of increased public sector spending," Hewes says. The Construction Confederation's Nicholls says it is an important weather vane for the industry. "It's the sort of spending that tends to get switched off as soon as things get tight. We are predicting a decline in 1999."
- Decline of 7% expected following spending cuts
Again, prospects depend on the government. The decimation of the roadbuilding programme in recent years has been offset to some extent by growth in the rail infrastructure and water industries.
Matthew Ward, industrial economist at Cambridge Econometrics, says John Prescott's transport review – although hard on the roads sector – has improved infrastructure works prospects in areas such as rail.
Hewes is much more pessimistic, predicting a 7% decline in the market. "The Channel Tunnel Rail Link is a good prospect," he says. "But the effects of that will be offset by the Jubilee Line Extension finishing up."