PRLog (Press Release) – Apr 22, 2011 – Our core scenario that growth would slow considerably in the latter half of 2010 fully played out, as base effects and electioneering wore off and austerity measures began to take effect. A real contraction of - 2.5% in UK construction output in the fourth quarter resulted in overall sector growth of 5.1% in 2010. Indeed, we believe this overall growth seen in 2010 belies the uncertainty that persists within the sector and our medium-term outlook remains subdued. We are therefore forecasting that conditions will moderate significantly between 2011 and 2015, expect growth to average 1.46% year-on-year (y-o-y) over this period. Our forecast for 2011 and 2012 remains largely unchanged, averaging around 1% real growth year-on-year (y-o-y).
Recent Developments include:
* The release of the UK's first National Infrastructure Plan (NIP) in October 2010 certainly provides some cause for optimism, setting out a clear strategy to upgrade the country's infrastructure. The NIP, a comprehensive strategy to invest GBP200bn in infrastructure over the next five years, has lifted our outlook slightly, with growth between 2012 and 2014 now forecast to average 1.6% (from 0.8%). The impact of the NIP does present further upside potential to our forecasts; however, the lack of clarit trash bins y on the timeframe of projects and the fact that many projects had already been priced in, causes us to remaining cautious in our outlook for now. * The government is to invest GBP8bn (US$12.6bn) in rail improvements, including 2,100 new carriages and the new GBP6bn (US$9.5bn) Thameslink line between Brighton and Bedford. The investments, to take place over a period of nine years, are necessary to stimulate growth, and will include the additional electrification of track in a number of locations. Some have argued, however, that the investment is too passenger focussed and should include freight infrastructure development. In October 2010 the government announced it will invest GBP30bn (US$47bn) in transport projects by 2014. Despite the fact GBP81bn (US$126.9bn) worth of public spending cuts were announced to reduce the country's budget deficit, the transport sector is set to escape the worst of the cuts because infrastructure projects are considered key for growth and investment. BMI expected the sector to grow by 1.7% in 2010 to GBP8bn (US$12.3bn), before trailing off in subsequent years. * UK Energy Secretary Chris Huhne approved eight of the country's 11 nuclear sites in October 2010. The decision to proceed with the nuclear new-build plans brings an end to uncertainty over the UK's energy future, which had been an issue following the formation of the coalition government. The news is broadly in line with expectations, and highlights that the government has limited options if it is to meet demand for new generating capacity. BMI estimates the sector grew by 8.6% in 2010 to GBP4.2bn (US$6.5bn). * The collapse of social housing firms Connaught and Rok Plc in Q310 and Q410 respectively, reflects the shrinking opportunities for firms operating within the social housing and school building sector. Drastic cuts to the social housing budget and the previous Labour government's Building Schools for the Future (BSF) programme have seen competition intensify for public contracts. This has seen smaller companies, which cannot reduce their costs to the same extent as larger ones, lose out. A lack of diversification is also an issue, with those who have a less flexible business model more likely to fare badly than firms who are able anticipate changes in the market.
In December 2010 the country's Office of Fair Trading (OFT)'s audit of ownership concluded that there were no immediate concerns regarding competition, risk of failure or negative impacts on consumers. This positive assessment reinforces our view that the UK's economic infrastructure space is relatively transparent.
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