Boston, MA -- (SBWIRE) -- 07/28/2012 -- BMI View: News that UK construction output fell by the sharpest pace in three years in Q112 highlights the detrimental effect the government's austerity measures are having on the industry. On a local scale, small and medium sized contractors are struggling to compete for work, while on a national scale, larger companies are beginning to cut operations in the UK and look elsewhere for opportunities. News that the coalition government is preparing a new state backed infrastructure investment plan could provide some solace to an industry which is struggling to keep its head above water.

In response to this data, and the general weakness in the market we have revised down our 2012 forecast, and are now pencilling in a slight contraction, at -0.5%. This is reflective of weak Q112 data, anticipated weak Q2 data in light of poor weather conditions thus far in the year, base effects from positive growth in 2011 and a diminishing project pipeline. In addition, we have revised down our medium term outlook, with the industry expected to post sub 1% growth until 2015.

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Recent Developments include:

- The controversial approval of High Speed Rail 2 (HS2) in January 2012 could give the UK railway sector a sizable boost, with the segment already posting strong growth from high value projects. However, construction is not due to begin until near the end of the decade and, consequently, the impact on our forecast is minimal. Nevertheless over the longer term we note significant potential and opportunities for British-based companies in particular. HS2 is expected to enter the construction phase in 2019/2020 and the first phase is estimated to take six and half years.
- In the government's March 2012 budget, the government reiterated its commitment to tapping into institutional demand for access to infrastructure. This latest statement followed the Treasury's signing of a memorandum of understanding (MoU) with the National Association of Pension Funds and the UK's Pension Protection Fund in November 2011. Under the banner of the National Infrastructure Plan (launched in December 2010), which will grant an allocation of GBP5bn in public funds, the strategy aims to attract a further GBP20bn from pension funds over the next five years.

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