Boston, MA -- (SBWIRE) -- 03/07/2013 -- BMI View: Q312 data for the UK construction industry shows a deteriorating picture in year-on-year terms. Consequently, we have further downgraded our estimate for growth to -7.7% for the year. The data, combined with anecdotal evidence from industry participants, has also prompted us to revise down our 2013 outlook, and we are now forecasting a 0.7% decline for the year.

Major developments in the sector:

Despite the first Q312 GDP estimate showing that the UK has emerged from its double dip recession, the picture was less optimistic for the construction sector. In quarter-on-quarter (q-o-q) terms the recession which took hold of the industry over 2012 appeared to be easing, with industry output (gross value added) down 2.5% q-o-q, compared to a 3% fall q-o-q in Q212. However, in year-on-year (y-o-y) terms a stark divergence in trend was patent, with the industry contracting 10.8% compared to Q311, a continuation of a steadily accelerating contraction. In the first nine months of 2012, the industry has contracted by an average of 8.2% y-o-y, prompting us to further revise down our estimate for the year to -7.7%.

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In November 2012, China's sovereign wealth fund, China Investment Corporation (CIC) purchased a 10% stake in FGP TopCo, the consortium which owns Heathrow Airport Holdings (formerly BAA). Heathrow Airport Holdings owns a number of UK airports: Heathrow, Stansted, Glasgow, Southampton and Aberdeen. CIC, through its subsidiary Stable Investment Corporation bought a 5.7% stake from the largest shareholder, Spanish infrastructure company Ferrovial for GBP257.4mn, and a combined 4.3% stake from the other FGP TopCo stakeholders for GBP192.6mn. The deal values Heathrow Airport Holdings at GBP4.5bn, which is roughly in line with other valuations from previous stake sales.

News that the UK is injecting an additional GBP4.2bn in investment into its railway sub-sector over the medium term has led us to revise up our industry growth forecast. We have long highlighted railways as being the strong point in the UK's otherwise weak construction sector, and the additional investment reiterates this viewpoint. Rail has long been the standout sub-sector in the UK's otherwise bleak construction industry, and is currently benefitting from a number of large-scale modernisation projects, including the GBP14.8bn Crossrail, GBP5.5bn Thameslink and the GBP33bn High-Speed Rail 2 (HS2) (the flagship project). These projects have led us to be optimistic over prospects for the sector.

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