Industry with little to build on as public sector cuts bite

Official figures published yesterday showed that output grew 8.3 per cent month-on-month following a summer of decline.

However, output was still down by 5.1 per cent year-on-year prompting economists and industry leaders to warn that the sector still faced difficult times.

Although construction accounts for less than 7 per cent of Britain’s national output, weak activity in the sector was the main drag on the economy this year, helping tip the country into its second recession since the financial crisis.

Scottish Building Federation chief executive Michael Levack said: “Falls in public sector output have been particularly dramatic, suggesting cuts to capital investment are now hitting the industry hard.

“I welcome the Chancellor’s commitment last week to redirect funding towards stimulating the construction industry but those additional funds will take time to have any effect. Meanwhile, many building firms are facing the prospect of another harsh winter.”

Levack said firms must be given much greater certainty about the pipeline of work through a revised Scottish infrastructure investment plan.

“We need to put an end to suicidal tendering from contractors with limited experience of operating in Scotland, which is undercutting firms with a much stronger Scottish track record,” he added.

Every sub-sector of construction recorded growth, month-on-month, except public housing and public non-housing repair and maintenance, with infrastructure projects performing strongly.

October’s bounce offers some hope that the UK can avoid entering a triple-dip recession when figures for the current, fourth quarter are published next month.

However, recent surveys of the larger manufacturing and service sectors have shown them to be struggling to maintain traction.

Howard Archer, chief UK and European economist at IHS Global Insight, the forecasting group, said the data opened the door to the construction sector making a “very rare” positive contribution to overall economic growth in the final three months of the year.

But he added: “Despite the rise in construction output in October and the limited improvement in orders from a very low level in the third quarter, it is still far from certain that the sector’s deep-seated and extended woes are beginning to ease.

“If the construction sector can make any positive contribution to GDP in the fourth quarter, it really would seem a bonus. While any growth in the construction sector would probably not be enough to stop a renewed dip in GDP in the fourth quarter, it would help to limit any decline.”

Philip Shaw, an economist at Investec, thought the sector may finally have turned a corner.

He said: “We judge that the construction figures should begin to add positive momentum to GDP rather than weigh heavily on output, as they have so far this year.”