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United Kingdom Infrastructure Report Q4 2009
Market |
Construction |
Report Type |
Market Research |
Country |
United Kingdom |
Published |
16 September 2009 |
Number of Pages |
58 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
The government said it wants 40% of electricity to come from lowcarbon sources by 2020, 30% of which will come from renewable sources
We have adjusted our forecasts to a slightly less bearish scenario for 2009 this quarter. We now expect the construction sector to contract by 11% in real terms in 2009, compared with our previous forecast that it would contract by 13%.
The UK's strong links to the US economy and its over-dependence on the financial services industry as an engine of growth have made it particularly vulnerable to the economic fallout from the turmoil in US. The slight improvement in our 2009 construction forecast is due to the recent slight improvement in our forecast for real GDP growth in the UK (and for gross fixed capital formation). We forecast that the UK's construction sector will experience negative real growth in 2010 in the order of -4.6% (an improvement on our earlier forecast of -7.1%), with positive growth resuming in 2011.
This quarter we update our analysis of Balfour Beatty, on the back of H109 results. Our earlier positive evaluation of the firm has been borne out by the latest results, as underlying pre-tax profit (before exceptional items and amortisation) rose 14% y-o-y in H109, to GBP108mn (US$178mn), from GBP95mn (US$157mn) in H108. The company cites growth in the US markets as a key driver, which for the period accounted for 30% of the group's total revenue. Going forward, the company retains a strong order book, thanks not only to the high availability of contracts in the US, but also significant contracts related to infrastructure investment in the UK.
In mid-July 2009, the UK government unveiled its White Paper on a new climate and industrial strategy that focuses on creating a low-carbon economy by 2050, centred around transforming the power mix to rely mainly on low-carbon sources. The government said it wants 40% of electricity to come from lowcarbon sources by 2020, 30% of which will come from renewable sources, mainly wind. Though very few financial pledges were made – a mere GBP120mn for the offshore wind sector – the White Paper notes that financial incentives will come through increasing renewable obligation certificates (ROCs), as well as streamlining the planning process for new wind farms. This process is already under way. Part of the 2009 Budget was provisions for offshore wind generation through increasing ROC points to two per MWh of offshore wind energy produced – an increase from the current one point that is issued. In addition, GBP525mn was allocated to support offshore wind power projects.
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