Government infrastructure plans meet with scepticism as construction market falters

RICS Construction Market Survey, Q4 2011

The UK construction industry continued to stall during the final three months of 2011, as doubts were cast over the government’s ability to boost private funding to deliver on proposed infrastructure projects, says the latest RICS Construction Market Survey.

Only 14 per cent of surveyors stated they felt the government would be successful in their Autumn Statement pledge and generate sufficient institutional funding for planned infrastructure projects. There was also a healthy degree of scepticism about the Get Britain Building Fund, with only a quarter of surveyors across the UK believing that it would have impact positively the sector.

This rather pessimistic assessment reflected the overall position of the industry in the final quarter of the year, with a net balance of seven per cent more respondents reporting falling overall workloads (from -1 per cent).

Once again, there was a divergence between private and public sector workloads. Private sector construction remained relatively flat towards the end of 2011 whereas overall public projects continued to fall, with 17 per cent more surveyors reporting falls rather than rises in levels of public housing construction.

Across the UK, the North-South divide was once again in evidence with only London and the South East reporting positive net balance readings. Significantly, there are also no sign that the pressure being felt by the SME sector is lessening. Indeed, a small majority of respondents see recent government initiatives as being unhelpful for this segment of the industry.

Looking forward, surveyors expect overall workloads to stagnate over the next twelve months and employment in the construction sector to fall further. Input costs continue to rise – albeit at a slower pace than previously – with a net balance of 19 per cent of surveyors reporting increasing costs. As result of this, expectations for future profits were firmly downbeat as 44 per cent more surveyors predicted future margins to decrease rather than increase over the coming year; this is the sixteenth consecutive quarter with a negative reading for this series.

Simon Rubinsohn, RICS Chief Economist, commented:

“Predictably, with workloads continuing to fall and costs slowly increasing towards the end of the year, the outlook for the construction industry remains rather downbeat with no prospect of improvement in sight.

“Particularly worrying are the questions being raised over the government’s plan to secure institutional funding for infrastructure projects. We would hope that this scepticism proves to be overly pessimistic, but the responses highlight the sizable job the government still has to do in convincing industry professionals that this approach is going to deliver.”