Double Dip warnings threaten industry

16 July 2010

Industry fears of a double-dip recession grew this week as commercial development re-entered decline and analysts warned firms that they faced more job cuts, insolvencies and the possibility of a relapse into recession, Building reported.

Figures released this week by property consultant Savills showed that total commercial development declined in June at the fastest rate for almost a year, following two months of growth.

David Noble, chief executive of the Chartered Institute of Purchasing and Supply, said: “The risk of a W-shaped recession is still very much with us. Our indices showed this month that confidence among contractors fell to the greatest extent in our survey’s history.”

He added: “We wait with bated breath to see how construction will cope with the obstacles it faces – public sector cuts, VAT rises and possibly interest rises before then.”

Meanwhile, Geoffrey Dicks, head of economic forecasting at the Office of Budgetary Responsibility, told a committee of MPs that the coalition’s decisions to cut spending have “logically increased the possibility of a double dip”.

Brian Berry, director of external affairs at the Federation of Master Builders, said: “Two thirds of our members think a double-dip is highly likely, because of the government’s economic policy and because we’re struggling to recover from 2008.”

Insolvency specialist Begbies Traynor also found that the number of construction firms experiencing financial distress remains at historically high levels, 24 per cent higher than in the second quarter of 2008, Construction News reported.

This is a far greater rise than the all-industry increase of 15 per cent over the past two years, showing the extent to which construction firms suffered during the recession.

The Begbies Traynor research did reveal that the number of construction companies with financial problems fell by a quarter in the three months to June.

However, Begbies Traynor partner Nick Hood said: “There is a growing risk that even if the UK avoids a double-dip recession it could develop a twin track economy, with public sector-dependent industries such as construction facing higher levels of financial distress than sectors less directly linked to government spending cuts.”

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