Cuts threaten a double-dip recession for construction

Cancelled schools and homes could add to the woes of a sector that already lost 500,000 jobs

The £100bn construction industry will re-enter recession due to the devastating cuts in the Comprehensive Spending Review (CSR), according to analysis by a leading trade body.

Capital expenditure as a proportion of GDP will fall from 4.9 to 3 per cent from 2009-10 to 2014-15, claimed the Construction Products Association (CPA). The expected upswing in private sector work will not be sufficient to make up the industry's shortfall in work, sending construction into a second downturn.

"The size of the cuts in the CSR means that there will be a double-dip recession in construction," said CPA economics director Noble Francis. "The industry makes up 9 per cent of UK GDP, so sharp falls in construction drags on economic recovery. This increases the risk of double-dip from extremely unlikely to possible but unlikely."

The major capital spending cuts have been made to education and social housing. The CPA estimates that up to 769 schools and 81,038 homes will not be built or rebuilt by 2015 as a result of the coalition's plans, announced by the Chancellor, George Osborne, on Wednesday.

Already, 500,000 jobs in the sector were lost last year, one-fifth of which were professionals such as architects and quantity surveyors. The sharpest construction recession since 1974 left only two million jobs in the industry.

"I suspect there's not much capacity to cut construction jobs any further," added Mr Francis. "But these cuts mean that construction employment will not be increasing over the next years, when areas such as financial services will take on more jobs."

Jonathan Hook, the head of UK construction and housebuilding at big four accountant PricewaterhouseCoopers, said that there would be a 5 per cent drop in overall construction output.

"Our own economists reckon there could be 100,000 [construction] job losses over the next couple of years," he said. "Regional construction firms will find life pretty difficult and there will be more casualties."

Construction is a hugely disparate industry with few major players compared with other sectors. Many small contractors are struggling to find work as clients rethink their building and renovation programmes. Up to 700 builders a quarter have collapsed since the credit crunch started in 2007, though this recently eased to about 500 every three months.

The UK Contractors Group, which represents more than 30 of the biggest construction groups, is working on a report to show that the industry can be integral to Prime Minister David Cameron's Big Society initiative. The findings will help the industry's advocates to lobby for at least some of the capital cuts to be overturned.

Using six case studies to back up claims that construction helps to improve local industry, the report states that the industry is "restoring sustainable and vibrant communities".