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Government funding helps stabilise construction industry

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A rise in government-funded construction work and a surge in utilities projects are helping to stabilise the flow of construction projects starting on site. After sharp falls during the first half of 2009, the Glenigan Index for August recorded a 9% year-on-year decline in the value of project starts. The year-on-year decline for March to May was 30%. Looking ahead, whilst private sector weakness is expected to impact project starts during the remainder of 2009, the flow of new work is forecast to improve during 2010.

The construction industry in Scotland and Northern Ireland benefited most from the rise in public sector building and civil engineering projects. Project starts during the three months to August also increased in the East of England, the North West and Yorkshire and the Humber. However, London and the Midlands experienced a fall in project starts in August.

Government funding has driven a strong upturn in social housing schemes. Falling rental and capital values and rising vacancy rates continue to impact commercial and industrial work. Industrial project starts were 61% down on a year ago, while the value of underlying office and retail schemes fell by a third. A rise in public sector work, in particular health and community & amenity projects, has moderated the overall decline. The number of education projects starting on site fell during August following strong growth in recent months. An increase in utilities work led to civil engineering projects being 16% up on a year ago.

Allan Wilen, economics director, Glenigan, commented: "While a weak private sector is expected to remain a drag on project starts during the rest of 2009, the pace of decline in private project starts is forecast to moderate over the coming months. High vacancy rates and falling rental levels will continue to depress the office, industrial and retail sectors, while housebuilders remain focussed on building out existing sites. In contrast, the recent increase in public sector project starts is set to lose momentum during the second half of 2009. More encouragingly new renewable energy projects and spending on rail and road infrastructure will sustain the increase in civil engineering project starts throughout the remainder of 2009."

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