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Construction output will remain subdued

The Glenigan Index has been extremely weak over the winter months, and with the growth of planning approvals slowing, industry prospects appear poor.

During the first quarter of last year, Government investment poured into construction – particularly into social housing and education – and the underlying value of start on sites grew by a fifth. This preceded a recovery in construction output, which experienced strikingly strong growth over the summer months of 2010.

However, recent data from the Office for National Statistics (ONS) shows that construction output fell over the three months to January, by 14% compared to the previous three months. Indeed, although year-on-year growth had remained intact over the fourth quarter of 2010, it had slowed.

The underlying value of starts on site is a measure of the supply of work available in the construction industry – it is clearly a key determinant on construction activity. During the third quarter of last year, the trend turned negative and Glenigan does not anticipate a quick recovery.

In addition, the growth in the underlying value of detailed planning approvals, fuelled by renewed private sector optimism, has started to tail off. The full effects of the cuts to Government investment has not yet been realised, and this uncertainty will hamper house building and other important sources of work.

As such, despite renewed hope of an eventual recovery in private non-residential building led by office and industrial sectors, we anticipated continued weakness in project starts. This will weigh heavily on construction output and its contribution to GDP growth this year.

About Fiona Russell-Horne

Fiona Russell-Horne
Group Managing Editor across the BMJ portfolio.

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