Infra behind UK construction slump

Infrastructure was the biggest contributor to the decline in UK construction in the second quarter of this year, according to the Office for National Statistics. New infrastructure output fell 8.6% on a quarterly basis and almost 25% on an annual basis.

The latest figures from the Office for National Statistics, the UK’s independent national statistical institute, show that the lack of spending on new infrastructure was the biggest contributor to a marked decline in UK construction sector output in the second quarter of 2012.

Overall, the total volume of UK construction output fell by 3.9 percent compared with the first quarter, and by 9.5 percent compared with the same quarter in 2011. However, the volume of new public and private infrastructure output showed a quarterly decline of 8.6 percent and a yearly decline of 24.8 percent.

This will come as an embarrassment to the UK coalition government, which has prioritised infrastructure as a means to try and spark economic growth. The latest figures suggest the vision outlined in the government’s National Infrastructure Plan 2011 – with £250 billion (€318 billion; $390 billion) to be spent on 500 infrastructure projects – has yet to begin coming to fruition.

“These numbers reveal the lack of available funding for infrastructure in the UK and illustrate the depth of the recession for the beleagured UK construction sector,” said Graham Robinson, a construction industry expert at law firm Pinsent Masons. “Investing in infrastructure is the best way to support growth, and so continued failure to spend on infrastructure will do long term damage to the British economy.”

While the government’s recent announcement of a £40 billion loan guarantee scheme for infrastructure projects received a warm welcome from many quarters, some suggested that not many projects would meet the scheme’s criteria – and also that it would apply more to ‘pipeline’ projects rather than ‘shovel ready’ projects.

There is also a question mark over the government’s ability to lure pension funds to invest in new infrastructure – which has been a much-hyped aspect of its plans. “Pension funds are unlikely to invest in risky new greenfield type infrastructure construction projects, preferring to invest in brownfield infrastructure,” points out Robinson.