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Infrastructure Construction

Infrastructure project starts have seen two consecutive years of growth, with starts rising by 7% in 2012 and 15% in 2013. Growth in 2014 so far has been more moderate, but remains positive and we anticipate relatively stable growth over the next two years.

Government investment in recent years has been focused on rail related projects, the reasons for which were part necessity, part economic stimulus and part Olympic preparations. We expect there to continue to be a high value of rail investment, with several major projects slated to start over the next few years. However, we also now expect spending on the road network, which has been neglected in recent years (at least in comparison to the railways). The re-launching of the private finance initiative as PF2 promises to reinvigorate the flow of major capital projects, but it will take time for these to negotiate the new funding and legislative regime and to progress to start on site. However the use of PF2 to fund the Priority Schools Building Programme has been cut back significantly and this may affect appetite to transfer the regime to other types of work such as infrastructure.

On the longer term horizon, the June Spending Round brought further commitments to infrastructure spending from the government. The news that the Department for Transport capital budget will be set at £9.5bn in 2015-16, representing a real terms increase of 5.5%, bodes well for sector prospects after the current parliament.

Announcements by the government and Network Rail suggest that relatively high levels of road and rail investment will be sustained to the end of the current Parliament and beyond. While we expect the pace of growth in 2014 to ease from the 13% rate seen last year, we expect stable expansion in infrastructure work over the next two years.

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