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Increase in construction fuels economic optimism

Over the last five years we have witnessed the longest, and perhaps strangest, recession in living memory.

Keith Gowenlock
Keith Gowenlock

While economic prospects remain varied in different areas of the country, we are seeing a growing momentum within the construction sector which is giving us further cause to be positive about the outlook.

The year has started brightly with the International Monetary Fund (IMF) sharply increasing its growth forecast for the UK economy to 2.4 per cent, a higher figure than any other major European economy.

As a sector which tends to provide the most relevant indication of economic revival, it is encouraging to see signs of increased construction activity. The latest survey from the Construction Products Association (CPA) reported growth for three consecutive quarters at the end of 2013, the first time the sector has achieved this in five years. To further support this, last month the Scottish Building Federation unveiled statistics showed an overall rise of almost £1bn in construction output in Scotland 2013, taking the total value to £10.7bn.

Looking at wider infrastructure projects in Scotland, there are further reasons to be optimistic about growth in the economy. Work involving a number of firms on the new £1.4bn Queensferry Crossing will continue while the first phase of the long-term, £3bn plan to dual the A9 between Perth and Inverness begins.

There are additional planned road building projects which will further bolster Scotland's construction sector. The first phases of improvements to the M8, M73 and M74 and continued work on the Aberdeen Western Peripheral Route will be rolled out this year. We are also seeing the re-emergence of Scottish local authority spending on key projects through the new Excel framework which covers street design and public realm developments as well as major grade separated junction schemes.

Further spending on healthcare projects will also benefit the construction and engineering sectors in Scotland with work due to commence shortly on Edinburgh Sick Kids Hospital while Dumfries & Galloway is in the bidding stages for its new hospital.

Our firm is also seeing a growing overseas demand for expertise from developing countries for healthcare building, particularly in emerging countries as they catch up with the west. WSP specialists, including colleagues from our Scottish operations, are currently looking at projects in the Middle East, Africa and Turkey.

There is also significant movement in Grade A office developments in Glasgow with four currently on site. Although these are largely existing schemes, that have been dusted down and re-started as opposed to new schemes, it is another encouraging sign of growth.

Another key area for economic recovery is the retail sector. In Scotland we are seeing some greater activity on retail developments, including the construction of new supermarkets within mixed use schemes. While there is currently limited activity in developing stand-alone retail, there are a number of retail park refurbishment and expansion projects which are underway across Scotland.

Renewable energy, another sector which supports growth in construction, also continues to be particularly active in Scotland although the removal of subsidy support for onshore wind and large-scale solar projects will likely focus developers towards small scale and/or community supported schemes. More solar projects are also taking shape in Scotland which is now considered a viable market although there are challenges over return on investment still to be addressed.

In amongst the mixed bag of measures unveiled in last month's Budget were a few nuggets which could further stimulate the UK construction sector. The announcement to support the building of 200,000 new homes in England and Wales, while falling well short of current demand, is at least a positive step forward and hopefully a platform for other increases in years to come. The Scottish Government's announcement that a further £8.4 million will go towards apprenticeships, part of an extra £85m for the whole UK announced in the Budget, is also helpful to the sector.

While we have a long way to go to get back to pre-2008 levels of growth and must recognise that the emerging recovery is not evenly spread across the UK, the current level of construction and infrastructure activity certainly gives us cause to be more upbeat and, quite literally, something to build on as we move forward in 2014.

Keith Gowenlock is the director of WSP (Scotland)

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