Gloom strikes builders

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BRecovery in the building industry has ground to a virtual halt and is unlikely to regain momentum in the near future, according to the Building Employers Confederation. It blamed a fall in public spending and increases in interest rates since last autumn.

The outlook for the industry is worse than it was 12 months ago, the confederation says.

Paul Shepherd, chairman, said: "Our worst fears have been realised, and the continuing threat of further increases [in interest rates] is seriously undermining confidence and jeopardising construction jobs."

Profitability was on the bottom and likely to remain so for the foreseeable future, Mr Shepherd said, adding: "There is a feeling that we have gone back in time."

In the first three months of 1995 the proportion of firms working at full capacity declined for the third successive quarter. New inquiries for private houses also fell for the third quarter in a row.

Mr Shepherd said that the problem began in the autumn with the first in a series of interest rate rises. "The trouble is that I cannot see any quick fix."

The BEC said the drop in public spending and increasing emphasis on the Public Sector Finance Initiative gave serious cause for concern. The initiative was "cumbersome" and the Government required contractors to bear too high a risk.

Ian Deslandes, BEC director-general, attacked the decision by the Government last year to examine every public spending project as a potential PFI scheme before approving any investment. "This has resulted in a very serious hiatus in the placing of contracts," he said.

While the confederation has supported the PFI, it initially regarded it as an add-on to public spending rather than the all-embracing policy it appears to have become.

Mr Shepherd said: "For the country's sake, we have to keep programmes moving in areas such as social housing and schools. The PFI is too dominant and is acting as a retardant on the sector as a whole."

A further concern was the cost to companies, particularly small firms, of assessing the potential of PFI contracts.

When companies looked at projects which then did not materialise, they were often put off involvement in the finance initiative for good.

The BEC's latest survey shows that while output increased slightly in the first quarter, it benefited only a few regions and the larger firms. There were significant reductions in new inquiries in most sectors.

Almost all firms have reported that the margin for profits in tendering for contracts has gone down or remained static. Higher tender prices were likely to be because costs had increased and to be of little value to firms bidding for contracts, the confederation said.

The Department of the Environment reported that employment in the construction industry increased by 1.3 per cent during the three months to January, but the confederation said prospects for further improvement remained bleak.

Since 1989, the industry has shed about 450,000 jobs - a quarter of the total workforce.