Chancellor Gordon Brown’s ambitious expansion of public spending on building and construction has run into the steepest fall in tax revenues since the 1991 recession, raising the spectre of cutbacks or further tax increases or both. But the greatest risk to the economy remains the housing bubble, which is still providing the fundamental support to consumer spending. However, a sudden collapse in house prices now seems unlikely.
Despite a new survey from the Royal Institution of Chartered Surveyors, which indicates the housing market is at its weakest since August 1995, optimists believe that prices may have been dented only temporarily by the war in Iraq. Anecdotal evidence suggests that the London property market, where the downturn began, is already flickering back to life.
Private housing expands
Certainly output of private housing is set to continue expanding this year. Predictions from the construction forecasting and research division of Experian Business Strategies indicate that growth will hit the 7% mark in 2003, before falling by 2% in 2004.
The latest official figures indicate that work started in Britain on 45,100 private sector dwellings in the three months to February 2003 – an increase of 10% on a year ago.
New orders placed with contractors for private housing were up 20% in the year, to December 2002-February 2003, but public housing and housing association orders fell by 8%. Total orders for new construction rose 27% in the year to December-February 2003.
Experian Business Strategies judges that overall construction output, including new work and repair and maintenance, will rise by 4.9% this year and by 1.9% in 2004. Within the total, new construction is set to grow by 6.4% and 0.7% this year and next respectively; repair and maintenance is forecast to expand consistently in 2003 and 2004 by around 3.2%.
Rail cutbacks
However, cutbacks in investment in the rail infrastructure are now expected to curtail growth in a sector which only recently was forecast to be a star performer, to 9% this year and 5% in 2004. The top performing mantle is now worn by the public non-residential sector, with the drive to better schools and hospitals and a major Ministry of Defence estates refurbishment programme set to lift output by 18% in 2003 and by 10% next year.
Industrial and commercial construction is expected to be under severe pressure, with an average annual decline of 4% and 1.5% respectively over the next two years.
The overview of construction industry activity in March from the Chartered Institute of Purchasing and Supply indicates that expansion moderated sharply, to the slowest rate since December 2001. But purchases of materials rose at the fastest pace for four months, causing lengthening lead times from suppliers.
Official figures show that output of carpentry and joinery products for the UK and export markets combined, rose by 11% in the three months to February this year compared with the same time in 2001-02. But output of kitchen furniture rose less than 2% over the year, and production of office and shop furniture was broadly flat.
Overseas suppliers made further inroads into the UK market in 2002. The value of imports of builders’ carpentry and joinery from EU manufacturers rose 4% year-on-year, to £146m, while imports from non-EU suppliers rose 18% to £192m. UK exports of builders’ carpentry and joinery to EU customers fell by 16% to £46m, and shipments to non-EU markets fell 32% to £5m. Total imports of prefabricated buildings jumped 37% last year, while exports rose just 5%.
Increased workloads
British construction firms again hired additional staff to meet increased workloads in March. The number of jobs in the industry has risen by 24,000 in six months, and the difficulty in finding suitable employees is reflected in a new 23% pay award covering 600,000 workers.
At the same time input costs for construction materials manufacturers are rising by an annual 4.2%. But the prospect of higher costs is unlikely to mar short-term prospects. However, a major pull back in public investment, coupled with weakness in the private sector, would signal uncertainty and the danger of recession in the longer term.
