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Recovery runs out of steam as prices rise and work falls

Construction work fell at the end of last year as government spending cuts hit the industry, according to the Royal Institution of Chartered Surveyors.

The latest RICS Construction Market Survey found that 5 per cent more surveyors said that workloads fell than rose in the last quarter of 2010.

The South East and London area was the only region to see an increase in work. Northern Ireland and Scotland saw the largest falls, with net balances of –52 and –23 respectively.

Public sector work was the hardest hit, as a result of government spending cuts with housing and non-housing recording both recording net balances of -20 on the RICS index.

Only the private commercial sector stayed in positive territory, +9, although the RICS said this was indicative of the sector bottoming out rather than a sustained recovery. Private sector work has yet to fill the gap left by falling public sector work, surveyors said.

Material costs rose dramatically, with 56 per cent more surveyors reporting a rise in costs, up from 28 per cent for the previous three months.

The cost of labour fell, reflecting increased competition for jobs, but this failed to make up for the increase in commodity prices. The result was that total input costs net balance climbed from +9 to +28.

As the market for work becomes more competitive, 14 per cent more surveyors said they expected employment levels to fall rather than rise over the next 12 months. The balance of surveyors’ predictions for workloads and profit margins, were -7 and -37 respectively.

RICS chief economist Simon Rubinsohn said: “The rebound in the construction sector seems to have run out of steam. Although bad weather at the end of the year will clearly have had some impact on responses to the survey, the bigger picture here is of an industry under significant pressure as public spending cuts begin to bite, while there is little sign of a private sector recovery across large parts of the country.”

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