Investing for economic recovery

The Government has stressed the important role of infrastructure investment in securing long term economic growth. In March the Chancellor announced plans to increase spending on infrastructure by an addition £3bn per year starting in 2015-16. Tomorrow’s Spending Round, which outlines the details for spending in this period, is certain to focus heavily on how this extra money is to be spent. 

The additional funds will be welcome as, in contrast to the rhetoric, recently released Glenigan and ONS data shows that the flow of new infrastructure projects has begun to slow. The ONS reported that new infrastructure orders in the first quarter of the year were 50% below the level seen during the final quarter of last year. 

However a look at the chart below shows that, despite the decline in the first quarter, the volume of infrastructure orders is still closer to the peak seen in 2010 than in many periods over the preceding 30 years. Indeed the infrastructure sector has fared relatively well over the last five years, supported by increased rail investment and private sector investment by the regulated utilities and energy sector. In contrast public sector non-residential activity has been fallen away sharply since 2010 with new orders running close to all-time lows.

Much of the recent fretting over infrastructure stems from the fact that some very large high profile schemes, such as the Hinkley Point nuclear power station, are failing to get the go ahead. While such projects can support long term economic growth, their immediate contribution to the economy and industry workload is more muted. The long timescales and the high capital intensity of such projects can mean that their effect on employment and local economies is far more limited than the equivalent spending on a greater number of less complex projects would be.

The latest Glenigan analysis has revealed a substantial £114 billion pipeline of central Government civil engineering and building projects. Whilst this includes important long term projects, such as HS2, the analysis also identified a host of both infrastructure and building projects that could potentially provide a major lift to construction activity over the next two years if delivered as scheduled. Hopefully Wednesday’s Spending Round will also provide the political commitment and resources to allow these schemes to progress. 

To see Glenigan’s research on the central government pipeline click here