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Download the full Report The world has become a very different place than it was 12 months ago. While the global economy had been expected to show some slow down, no-one anticipated the level of exposure that the financial markets had to the bad debt created by the collapse of the sub-prime mortgage market in the US. Not only have industrialised economies seen turmoil in their financial markets in recent months, but those economies previously considered ‘decoupled’ from the West, such as China and India, have proved just as vulnerable to the spreading contagion, with falling share prices on their stock exchanges and shrinking export markets. The UK economy has proved one of the most exposed to the debt crisis and according to the Organisation for Economic Cooperation and Development (OECD) is likely to suffer one of the worst contractions among the major European economies. By the end of 2009, it is likely that the UK economy will have experienced six quarters of falling output, a contraction that the construction industry will certainly not be immune from. The recessionary period of the forecast will last through 2009 and into 2010 as the housing market continues to weaken and demand for industrial, office, retail and leisure facilities declines considerably. It would be a mistake, however, to believe that activity will decline across the whole industry in the short term. There are a significant number of major projects and programmes of work that will continue across the forecast period which are dependant upon the government delivering to its public spending commitments, as set out in the 2007 Comprehensive Spending Review. Project activity Work on the main Olympic venues started ahead of schedule and will continue to at least the end of 2010. M25 widening is still scheduled to begin in the spring of 2009 and Crossrail in 2010. There are major station redevelopments taking place at a number of locations, including Blackfriars and Farringdon (as part of the Thameslink programme), Reading, Birmingham New Street, and Nottingham. Furthermore, the Scottish Government’s £3bn 10-year transport investment plan continues, with M74 redevelopment currently on track and the Glasgow Airport Rail Link to start soon. Construction work relating to the Building Schools for the Future programme will also help to mitigate falls in activity in other areas of the industry, despite a poor delivery up to March 2008 period. Output growth By the second half of 2010, the expectation is that the worst will be over, credit conditions will have eased and the economy will start expanding again. Potential house purchasers will have seen affordability improve and will once again be able to access mortgage funding at a level of deposit that will be attainable. On the supply side, developers, both of residential and non-residential buildings, should see demand start to return to their respective markets and schemes that were mothballed during the recession should be able to be reactivated fairly quickly. Thus from 2011 construction output is predicted to start to rise again and by 2013 the rate of growth could be approaching 3% in real terms. Overall, the effect of the recession will be to reduce construction output growth to around 0.5% per year between 2009 and 2013, compared to the 1.7% predicted for the 2008-2012 period. Employment in the period is projected to increase by just over 74,000 from late 2010 onwards, an overall rise of 2.9% between 2009 and 2013. The annual recruitment requirement predicated on this level of output growth will be in the region of 37,000 new entrants a year, which does not include new entrant trainees. It is important to point out that the 2009-2013 forecast divides into two distinct periods – one of recession and one of recovery.
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