Private sector strengthening, despite poor economic backdrop

Last month it was announced that the UK had officially entered a second recession in four years, as GDP fell by 0.2% over the first quarter of the year.

Construction was one of the poorest performing sections of the economy, with a 3% quarterly fall, and was labelled as being a key factor in the overall negative figure. But does this negative figure reflect the reality on the ground?

There is an ongoing debate over the accuracy the construction output figures. This is nothing new, following revisions during the first half of last year. Stephen Ratcliffe, director of the UKCG, expressed the opinion to Construction News that the sharp tightening in output has not been the experience reflected by UKCG members.

However, it is certainly true the industry is suffering from a decline in public spending which is gathering pace. Over the first quarter of 2012, Glenigan project data shows that only 25% of the underlying value of project starts was primarily publicly funded compared with 38% three years ago. Though Housing Association projects remained buoyant over the first quarter of the year – two large repair and maintenance projects commenced after the turn of the year – the prospects for this source of work will also prove weak.

At the same time, however, there is an increasing amount of new work funded from private sources. The value of office, industrial and retail construction starts increased significantly over the first quarter of the year, while private housing also continued to progress. Overall, 63% of the underlying value of starts in the three months to March was primarily privately funded compared to 53% last year.

The value of the private sector recovery was greater than the drop off in public spending, meaning that overall project starts increased of the first three months of 2012. This gives hope that output figures will become more encouraging over the next few months.