United Kingdom Infrastructure Report Q3 2009

As the UK has been severely hit by the global recession, it seems that government spending and incentives are not enough to galvanise the economy and boost investor confidence in the infrastructure sector. This quarter, we have once again revised downwards our forecasts for the UK construction, and by extension infrastructure, industry. In BMI's UK Infrastructure Report Q309, we forecast that the British construction industry will contract in real terms by 13.44% y-o-y during 2009, and we estimate the industry to be worth GBP71.74bn. For 2010, we forecast the industry's value to decline further to GBP67.64bn, with real growth of -7.12%. We expect positive real growth to resume in 2011 at a rate of 5.08%, while the total workforce in the construction sector is estimated to fluctuate only slightly with an average of 28,500mn throughout our five-year forecast period.

The recent activity in the infrastructure sector illustrates the lack of capital investment. While in the transport industry a small number of PFIs are slowly taking off, the main focus this quarter has been on the utilities sector. However, even though the UK energy sector registered high activity this quarter, there was only small number of new contracts actually awarded.

In BMI's Infrastructure Business Environment Ratings, the UK's scores have remained unchanged this quarter. The UK now ranks third out of the four Western European countries rated, with its low scores in our sector growth and capital investment indicators dragging down the country's overall score. The UK also ranks third in our overall Project Finance Ratings for Western Europe. While the UK achieves high scores in the majority of our indicators, it performs poorly in the areas of long-term currency volatility and financial stability.

Our overall view for the UK is vigilant. Despite the government's efforts to sustain investments, macroeconomic conditions seem bound to deteriorate. For 2009, we have further revised our forecasts and are now expecting that the rate of real GDP growth will fall to -4.2% y-o-y, while we expect unemployment to rise to 5.4%. We forecast real GDP growth of 0% for 2010, and we expect that the economy will begin to recover in 2011, with positive real GDP growth resuming at a rate of 3.1%.