WELSH business gave a cautious welcome to record breaking gains in the construction sector that fuelled the highest growth of the UK economy in nine years.

But business leaders warned that it may represent a growth peak for the UK economy, with austerity measures set to dig in and bring lower growth in the third quarter.

In its revision of the second- quarter growth figures, the Office for National Statistics said that the rate of growth in the second quarter of 2010 was 1.2%, scaled up from 1.1%.

The hike was attributed to the stronger-than-expected performance of the construction sector, which saw its output grow from 6.6% to 8.5%, the strongest rate since the first quarter of 1982.

Strong growth was coupled with a promising 0.7% increase in consumer spending – compared with a fall of 0.1% in the first quarter – boosted by World Cup sales of food, drink and televisions.

ONS figures also revealed a slight downward revision to growth in the services sector, which accounts for more than 70% of GDP, from 0.9% to 0.7%, while investment fell by 2.4% on the quarter.

But the more upbeat picture for the UK economy was tempered by sluggish growth in the US, where the Commerce Department said GDP rose at an annualised rate of 1.6% in April to June, down from an initial estimate of 2.4%.

And Welsh business figures warned that although the figures were positive, the strong upward trend was unlikely to continue at that pace.

Director of CBI Wales David Rosser said the growth figures and the manufacturing sector showing were “very encouraging”, but added: “The construction industry growth is quite extraordinary and was no doubt helped by a recovery in housebuilding. However we should not expect this sector to continue at this pace.

“The recovery from recession will not be a smooth upward trend, and we can expect growth figures to vary from quarter to quarter – however, this does not signify a double dip recession is likely.”

Public affairs director of FSB Wales Russell Lawson said: “The slight upward revision on the back of strong construction data is neither a major surprise nor changes our outlook over the longer term.

“We still have major public sector cuts still to bite, which will affect businesses who rely on public sector contracts, or who are part of a supply chain which involves public sector spending.

“On top of this, we still have the situation where credit conditions for smaller businesses remain tighter than for large corporates.

“Large businesses have many ways of accessing finance, with bank lending generally being a last resort. The opposite is true for small firms, with going to the bank being the main option.

“As long as these conditions persist, then it will be extremely difficult for small businesses to invest and take on the workforce that the public sector is just about to shed, which will in turn stifle economic growth.”

David Russ, managing director for the South Wales Chamber of Commerce, said: “The upward revision to GDP in the second quarter is good news. This puts the UK in a better than expected position as we prepare for the austerity measures that will be introduced over the next few years.

“However, the figures do contain some worrying features. Growth in services has been revised down and capital investment fell after recording strong growth in the first quarter.

“In spite of the positive figures, it is important to bear in mind that the implementation of the tough deficit cutting programme will inevitably have a serious dampening affect on demand and risks of an economic setback remain.

“Businesses in Wales are still facing huge pressures and interest rates must stay as low as possible for as long as possible.”

Representatives of the construction industry said that although the figures were encouraging, it does not reflect the reality of the industry in Wales.

Managing director of civil and structural engineering consultants CD Gray & Associates, Chris Gray, who is also on the board of the Assembly Government-funded construction umbrella body Constructing Excellence, said that the picture was “misleading” in a Welsh context.

He said: “The reality is that contractors, consultants, architects and the rest are feeling the pinch at the moment.

“We have work on at the moment, one or two projects, but the cutbacks are kicking in now and firms are struggling to get work – they are looking for projects that are not around. Firms are laying off a lot of people and I can only see that getting worse.

He added: “The construction output figures appear good, but they are misleading as they probably represent what was happening three months ago and it is changing quite a bit, especially in Wales.

“The public bodies that had projects before are not building any more – the Assembly Government, the Highways Agency and the Environment Agency. There is work in England with the Olympics project, but that is not filtering through to Wales.”

Simon Thomas, managing director of Newport plastic pipes manufacturer, Asset International, which supplies the construction industry, said: “The latest GDP figures are reflective of our order book, which has grown steadily since the beginning of the year.

“This is largely due to a resurgence in the new-build housing market, mainly in the Midlands and South-West of England, as well as work on the M25 widening project and the 2012 Olympics.

“There is very little work for us in Wales, so it would be fantastic to see an incentive for Wales-based construction companies to use Welsh suppliers.

“This would boost our manufacturing and construction sectors and make the Welsh economy less reliant on the service sector.”

Managing director of architects Holder Mathias, Peter Gamble, said: “While it is good news that the underlying figures are an improvement, the construction growth figures are flattered by attempts from the last government to push through late public sector investment in a bid to stay in power.

“Unfortunately for Labour, these figures have come through a little too late for them, and it means that the expansion gives a false indication of something that will disappear in the next couple of quarters.

“Projects like Building Schools for Future and a number of other public sector schemes are great if we can afford them, but the reality is we cannot at the moment. Architects who rely heavily on public sector work will and have already started to suffer, and they are seeing the type of drop in revenue that a lot of private sector architects saw at the start of the recession.”

Paul Wong, director at project and cost management specialists Lee Wakemans in Cardiff, said: “The market remains extremely competitive on the tendering aspect, with contractors feeling uncertain whether the recent improvement is a blip or something to be built on. Planning for the future remains uncertain especially given the slow-down in public procurement.

“In terms of the private sector, there seems to be more confidence with greater activity on design and planning schemes. This should in due course convert to construction projects.”

Tim Smith, partner in charge at the Cardiff accountants and business advisers PKF, said: “While it’s certainly good to see that there is some positive growth, we’re certainly not out of the woods yet.

“There are already rumours that America is heading for a double dip recession as it struggles with its economic recovery – and we all know that when they sneeze, Britain catches a cold.”

Lead consultant in wealth planning at accountants Clay Shaw Thomas, Gretchen Betts, said: “There is need for cautious optimism with this announcement, as this is very likely to be the ‘high’ point of the year.

“We remain in a very volatile economy where the risk of a next quarter decline and continued sterling and stock market volatility is a very real risk.

“In Wales the effect that the government cuts will have on our large public sector work force is not yet known and locally we have an unstable few months to come until the announcements and cuts are all finalised.”

Managing partner at Watkins & Gunn solicitors, Clive Thomas, said: “I am cautiously optimistic about the news that GDP has increased for a third consecutive quarter.

“It is a further sign that Britain is recovering from the recession but it must be remembered that the Government’s spending cuts have yet to have an impact on the economy.”

Similar Posts:

Share