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Summer 2011 edition - £120

construction industry forecasts 2011-2015

Key Points Include:
• • • • • • Construction output to fall 0.5% in 2011 before falling a further 2.8% in 2012 Total housing starts in 2011 less than half needed to meet number of households created Public sector construction work to fall by 26% by 2014 Private sector construction work to rise by 23% by 2015 Roads construction set to halve by 2014 Energy construction set to rise threefold by 2015

Overview
The prospects for construction over the next three years are poor with no significant growth until 2014 and even by 2015, output will not have returned to pre-recession levels. Output in the industry is expected to fall by 0.5% during 2011 with public investment in construction falling sharply, not offset by the rise in private sector construction. 2012 is set to be the first full year of impacts of public sector spending cuts with construction from public sector falling a further 12% and, overall, the industry is set to fall by almost 3%. 2013 is set to see marginal growth with private sector investment finally offsetting public sector falls but it is only in 2014 that the industry is expected to see considerable growth, of 3.4%, as it begins recovery. Despite the pessimism there are areas within the construction industry that are anticipated to enjoy growth in the private sector. Private housing starts are expected to grow in each year of the forecast and, by 2015, are expected to be double the figure seen in 2009. Yet this will still be 14% lower than in 2007 and starts throughout the forecast period will be less than needed to meet the number of households expected to be created each year, exacerbating the gap between demand and supply. Commercial offices output is expected to rise by more than 50% over the next five years, boosted by high profile projects within London such as the Shard, Broadgate, Pinnacle, and ‘Cheesegrater’ at 122 Leadenhall. Despite subdued economic activity and consumer spending, supermarkets continue to thrive and expansion programmes by all the major chains are expected to raise retail construction which, in 2015, is set to be almost one third higher than in 2009. Infrastructure is anticipated to be boosted by a threefold rise in energy construction driven by the newly confirmed nuclear programme in addition to renewables projects. However, the main impact over the next 18-24 months is likely to be on public sector construction, where the industry is, in the main, going to suffer.The cuts in public sector investment were reported in last year’s Comprehensive Spending Review (CSR) and Budget 2011. However, the full impacts have yet to be felt. Investment in education and health during 2010 were both three times the figure seen 15 years ago and will both suffer significant cutbacks in spending. Education including PFI construction is expected to almost halve and health including PFI is expected to fall 36% over the next four years. Public housing starts are expected to fall 39% by 2013 as the government focuses on the private provision of ‘affordable’ housing rather than ‘social’ housing and this will only exacerbate an increasingly long social housing waiting list. Roads construction is also expected to suffer and funding constraints on the Highways Agency and local authorities are expected to ensure that output falls by almost 50% over the next four years. Repair and maintenance is expected to fall over the next two years as slow private repair and maintenance recovery is outweighed by considerable falls in public spending. Overall, the forecast states that construction will fall marginally in 2011, fall significantly in 2012 and be broadly flat in 2013. Yet risks to the forecasts are, in the main, on the downside with subdued growth for the economy as a whole and potential contagion effects from countries struggling with excessive debt within the euro zone, in addition to rising costs and concerns regarding...
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