Construction feeling the pinch as public sector slows down

The value of construction projects starting on site in the three months to May 2010 fell back to below 2006 levels as fewer public sector project started on site following the General Election. The Glenigan Index for May was 10 per cent up on a year ago, but lower than the Index for March and April this year. “The construction industry will be looking to the private sector as government funded schemes come under increasing pressure in the coming months.” commented Allan Wilen, economics director, Glenigan.

Residential project starts in the three months to May showed a clear divergence between private and public funded projects. “The value of private housing project starts remained 58 per cent up on a year ago while social housing developments fell back from the surge seen in the first quarter. This pattern is forecast to continue in the coming months as housebuilders look to capitalise on gradually improving market conditions and social housing starts remain under pressure” according to Mr Wilen. The Glenigan Residential Index remained 26 per cent higher than a year ago, but fell back from the rise seen in the past two months.

Countering a weak start to the year, the Glenigan Civil Engineering Index for May was 11 per cent higher than a year ago. Civil engineering has been boosted by new utility projects including energy, waste and water projects.

There have been marked differences in regional construction trends in recent months. Mr Wilen commented “There has been a sharp divergence in project starts over recent months, with Scotland, Wales and the north of England enjoying a sharp rise in project starts compared to a year ago. In contrast, the flow of project starts has been at best flat in the south of England” according to Mr Wilen.

Looking ahead, Mr Wilen said “The recent pick-up in private housing, retail, hotel and leisure projects will continue to be tempered by low levels of activity in the industrial and office sectors over the next few months. However conditions in the industrial and commercial property markets have improved and a more widespread strengthening in private sector activity is forecast over the next two years. In contrast Government funding cuts will restrict the flow of new public sector schemes over the medium term.”