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Back in January, the talk was of skills shortages and a capacity crisis. Six months on, it’s more likely to be about waning demand from the private sector and a waiting game for public sector work. The housing market has remained flatter than was expected and the dip in consumer confidence, which has led to a nosedive in the retail and leisure sectors, is starting to hit orders.

This new pessimism is underpinned by a number of reports: the RICS’ research has shown that growth in the first quarter of this year slowed to 0.5% compared with a figure of 1.1% for the first quarter of last year. The ODPM has found that private housing starts fell 9% over the same period, and Hometrack says house prices have fallen for the 11th consecutive month. Perhaps the clearest indicator comes from the Construction Products Association, which this week took a pair of shears to its economic forecast (see page 15). It always predicted that growth would slow this year, compared with the roaring days of 2003, when the industry’s output expanded 5.1%, and 2004, when it expanded 3.2%. But whereas in January it was forecasting growth of 0.8% in 2005 and 2.4% in 2006, it is now talking about 0.6% for 2005 and 0.9% in 2006. On the general economic front, record borrowing by the government last month points to a rise in tax, which would dent consumer confidence.

Having said all that, we are a way yet from using the R word. The government’s line is that we are seeing a much-needed correction, and that with unemployment, inflation and interest rates at low levels, the underlying economy is stable and sustainable. And the CPA still predicts 3.5% growth in 2007. But a great deal is riding on government spending. The strain on current account spending could eat into repairs and maintenance, but capital spending is ringfenced for the time being. There is still an enormous bounty in store for schools and hospitals; the problem is that it’s slow in coming through. PFI hospitals are struggling to find bidders, Procure 21 faces an uncertain future and education investment must negotiate a complex new procurement route. So, the delivery of public sector investment is more crucial than ever if we are to enjoy an Indian summer rather than an early winter.

Denise Chevin, editor