Property slumps cause recessions and the construction sector drags us out of them. At least, that's the theory

In a recovery, construction leads the way. Its a truism of economic analysis that construction, while only a small part of the economy at around 7%, gives GDP a strong push out of a recessionary trough.

The property market may be the principle cause of one recession after another, but at least construction can be guaranteed to lead us out.

Friday's figures from the Office For National Statistics show this time it could be different. Data for the fourth quarter is distinctly underwhelming.

Output contracted 0.5% quarter-on-quarter, limiting annual seasonally adjusted growth to 2.8% in 2011.

In 2008, output declined 2.7% prior to the biggest annual fall on record, 2009's 13.4% drop. In 2010, the industry clawed back some of losses with a growth spurt of 8.2%, almost all of it (8.1%) in the second quarter of the year. Since then, like the rest of the economy, construction has flatlined.

Simon Rawlinson, head of research at construction consultants EC Harris, said the outlook was not very rosy either.

He said dramatic cuts in public sector non-house building will pull down the industry's output, offsetting a spurt in infrastructure spending, that in turn is expected to level off.

"The Q4 data indicates that public sector cuts are really beginning to bite (7.3% drop in Q4). This confirms a trend that was evident in the monthly output releases issued in November and December and it is the commercial sector in particular that has been impacted by the loss of output from the public sector."

"The real star performer in 2011 has been infrastructure, which has delivered £1.6bn year-on-year growth. It will difficult to sustain this rate of growth in 2012, however the pipeline in place suggests that volumes will stay at current high levels."

His assessment is that output will fall this year. Contrast the situation with the early 1990s. The slump after the 1980s housing bubble burst was almost as bad – a cumulative decline of 14.3% by 1994 compared to a 16.1% during 2008 and 2009 – but once it was over there was consistent growth. There was the occasional negative quarter between 1995 and 2001, but every year was positive. It looks like this year will be a struggle and many subsequent years as cuts continue and austerity takes precedence.

Drop in producer prices not as large as analysts expected, creating fears that consumer price index will remain high

Britain's factories enjoyed a further let-up in their mounting raw material costs last month and have passed on some of that to their customers, data released on Friday morning showed.

The drop in inflation, though, was not as marked as economists had hoped, prompting warnings that wider price pressures in the economy could now prove stubborn. This would leave households under pressure, and potentially defy the Bank of England's prediction that inflation could even fall too low this year.

Inflation at the factory gate eased to 4.1% in January from 4.8% the month before, the Office for National Statistics said. That was, however, slightly above a forecast of 3.7% and economists predicted that so-called producer price inflation could now start to prove "sticky" and fail to come down enough to ease wider inflation in the economy.

Producers' input price inflation meanwhile dropped markedly to 7% from 8.9%, the slowest pace for more than two years. But that too was not quite as low as the 6.7% rate expected by City economists.

The Bank of England forecasts that price pressures in the economy will ease throughout this year. Policymakers said on Thursday that they feared inflation, currently double its 2% government-set target, would even below this by the end of the year and that they were therefore stepping in with more electronic cash. They announced £50bn more in quantitative easing against the backdrop of a flagging economy.

But economists said the Bank may yet be proved wrong on inflation, especially given a recent jump in oil prices.

"This latest sign of stickiness reaffirms my feeling that consumer price inflation (CPI) will prove higher than most, including the Bank of England expects," said Alan Clarke, economist at Scotiabank. "So while CPI inflation is likely to fall to around 2% by September, that is probably as low as it will go in my view."

Separately, the ONS said the construction industry suffered a 0.5% fall in output in the final three months of 2011, compared with the previous quarter. That was driven by a drop in output in five out of construction's nine sectors. Infrastructure, which covers projects such as railway line construction and motorway improvements, outperformed, however. Output for infrastructure rose 4% on the quarter to its highest level since comparable records began in 1980.

A record year for infrastructure work also helped drive a 2.8% rise in construction industry output for 2011 as a whole. There was also support from a rise in new public housing output to the highest level since 1980.

Construction makes up just 7.6% of the UK economy and statisticians had already estimated last month that its output dropped 0.5% in the final quarter of 2011. The latest data therefore had no bearing on the ONS estimate that overall GDP fell 0.2% in the fourth quarter.

Developers could find it easier to obtain permission to construct homes and schools on contaminated sites

Building on land contaminated by industrial pollution or even asbestos will be made easier after government regulations are published today, experts claim.

The environment department, Defra, is expected to publish fresh guidelines for building on contaminated land to make it easier for developers to get permission for putting up homes or schools on the sites.

But the Chartered Institute of Environmental Health, the professional body for the industry, has said the new regulations would lead to fewer sites having to be treated before they are built on. That will result in "reducing costs, in particular for developers, but at the same time reducing the level of health protection offered … to users of the land," says a briefing document from the institute.

The new rules would "water down" the current science-based risk assessments and rely on a new "qualitative" approach, despite Defra's own consultation admitting "it is inherently difficult to prove causality and there are good science-based reasons to be concerned that some sites pose significant risks from long-term exposures," it adds.

The institute estimates that as much as 300,000 hectares of land would be covered by the new rules – an area greater than the size of Greater London and Birmingham combined.

Mary Creagh, the shadow environment secretary, said: "I am horrified at these proposals which show, once again, how out-of-touch the Conservatives are on the environment. After the forests sell-off and planning fiascos, Ministers now want to make it easier for developers to build on contaminated land.

"Strong environmental protections are key to creating green jobs and healthy, sustainable homes yet the government seems hell bent on destroying them.The collapse in construction is caused by lack of bank lending, and companies hoarding cash and land as a buffer against economic uncertainty rather than these guidelines."

Defra, however, denied the new rules would weaken protection of public health. It said: "We have made clear all along that our intention is to reduce the burden of regulation rather than the environmental outcomes they are designed to achieve. The current system for identifying and decontaminating brownfield sites is currently unclear and difficult to put into practice. We are therefore looking to simplify the guidance available – so we are protecting the environment, ensuring land is safe to be built on and removing unnecessary bureaucracy."

The rules for building on contaminated land were introduced by the last Conservative government's environment minister John Gummer, though not brought into effect in England until 2000.

Since then, nearly 800 sites in England and Wales have been identified as contaminated, including some with homes built on them and one which is now an infant school.

Defra took action after concern rose about how many sites were being left in limbo because experts said there were not clear guidelines for local authorities to decide if the pollution was harmful on serious enough scale.

The Chartered Institute of Environmental Health, CIEH, argues that what is needed is more detailed rulings by the Environment Agency on "how nasty the stuff is and how much of it people especially are likely to come into contact with", especially the Soil Guideline Values which would state how much of a pollutant would pose "significant possibility of significant harm" and so trigger a site to be judged contaminated land.

Its briefing, which claims many local authorities and other professional bodies have also criticised the proposed guidelines, accuses the government of "legislating by the backdoor", and urges MPs to stop them, adding: "it is important that MPs are not seduced by the label 'Guidance' into thinking that this is trivial and that its laying before Parliament is a mere formality, and allow it to be adopted without comment."

The contaminated land guidelines were identified by Defra as part of last year's Red Tape Challenge to all government departments to reduce unnecessary regulations. At that time, Defra said: "the guidance is overly complicated which means businesses and developers face expensive clean-ups that create a burden for the housing industry, put extra costs on homebuyers and fail to achieve the intended environmental benefit. We plan to simplify the guidance to clarify when remediation is needed and how to ensure land is decontaminated to a high standard."Last month the Guardian reported that the cabinet office minister Oliver Letwin, usually a strong supporter of the environment, had proposed that nearly 300 environmental regulations be reduced to 50 pages. Defra and the Cabinet Office would not comment on the claims, but an Environment Agency spokesman said: "The meeting was about simplifying advice to business about environmental regulation and was positive."

A group representing the UK's offshore wind industry plans to ensure more than half the supply chain is UK-sourced

British industries from boat-building to concrete, and electric cabling to gearbox manufacturing are in the line-up to benefit from the construction of thousands of offshore wind turbines, if new plans go ahead.

A group representing the UK's offshore wind industry on Monday adopted a target of ensuring that more than half of the supply chain for offshore windfarms is sourced from the UK. At present, less than a third of the value of the goods and services needed to construct offshore wind farms actually originates in the UK.

The adoption of the new target came as the UK's wind industry faced its fiercest ever assault, from a group of more than 100 Tory MPs calling on the government to cut subsidies for onshore windfarms. Their campaign, in the form of a letter to the prime minister, marked the first crisis for the incoming energy and climate change secretary, Ed Davey, after taking over from Chris Huhne on Friday. Huhne resigned when it was announced he would face criminal charges over an alleged driving offence.

"The UK has created the world's biggest offshore wind market and that should be attracting manufacturers and support companies," said Keith Anderson, chief corporate officer at Scottish Power and co-chair with the energy minister, Charles Hendry, of the Offshore Wind Developers' Forum. "This is a massive opportunity. There has been a lot of investment in offshore wind in the UK, but very little in UK suppliers."

The size of the potential market runs to many billions – the government estimates that at least £200bn in investment will be needed in the whole energy sector by 2020, to overhaul the UK's creaking grid infrastructure, bring power stations up to European standards and meet renewable energy and emissions targets.

Outlining the wider benefits of offshore wind, Anderson pointed to Belfast, where the harbour is being redeveloped as a hub for offshore windfarm construction, at a cost of about £50m. The work will create 150 jobs in construction, as well as requiring about 1m tonnes of stone from local quarries, which will create hundreds more jobs. "It is the first dedicated harbour upgrade for offshore wind," Anderson said.

Under European Union laws, the government would not be allowed to specify that a certain amount of the supplies for offshore wind should be homegrown. However, this initiative is technically one that has come from the industry itself, so it is permissible for the government to endorse it.

But critics pointed out that the target of sourcing more than half of supplies from the UK had no deadline attached, and represented "more of a vague aspiration" than a concrete plan. "It's a nod in the right direction of a strategy, but what is the strategy?" asked one person involved with the industry, who could not be named.

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Markit/CIPS UK construction PMI survey dropped to 51.4 in January from 53.2 in December, below forecasts and the weakest for four months – but companies are upbeat about the economy

Britain's builders started the year optimistic that business will soon pick up despite a slowdown in overall growth for the construction sector.

As housing and civil engineering companies reported falling business in January, the construction sector only just managed to keep growing, according to a survey.

The headline activity reading dropped to 51.4 from 53.2 in December in the Markit/CIPS UK construction PMI survey.

That was above the 50-mark that separates growth from contraction for the 13th straight month. But it undershot economists' forecasts for 52.6 and was the weakest for four months.

Survey compilers Markit said the slowdown in growth was led by weaker new order growth, with companies reporting reductions in clients' budgets.

Still, construction companies were generally more optimistic about activity picking up in the year ahead.

The survey's confidence reading was the highest since May 2011 as companies cited help from improving economic conditions and new marketing initiatives.

"This suggests that growth may pick up again in the sector in coming months and, on top of the surprisingly strong start to 2012 reported by the sister survey of manufacturing, will raise hopes that a slide back into recession may yet be avoided," said Sarah Bingham, economist at Markit.

The manufacturing sector enjoyed its strongest production growth for almost a year in January, according to the PMI survey for the sector published earlier this week. That gave a boost to government and business hopes that recession can still be averted despite a slight downturn in overall growth at the end of 2011.

But fears remain that unemployment has much further to rise as many businesses hold off hiring new workers amid many uncertainties.

In construction, the only sub-sector to post growth last month was commercial construction and Markit said that was not enough to create jobs in the wider sector.

Construction industry fears 'lost decade' as sector output falls, with painters and decorators taking the brunt

The construction industry will lose a further 45,000 jobs this year, signalling a "lost decade" for the sector, according to a report.

Manual trades will be worst hit, with 6,300 fewer painters and decorators expected to be working by 2016 than in 2010, 3,000 fewer labourers and 2,500 fewer bricklayers, CITB-ConstructionSkills said.

One area of growth will be among construction managers, with an expected increase of 30,000 in the next few years.

Construction output is set to fall by 3% this year, and growth will be "slow and uneven" in the next five years, the report said. This is because of economic uncertainty, as well as changes to working practices.

Judy Lowe, deputy chairman of CITB-ConstructionSkills, said the industry was in for a tough time.

"Infrastructure investment, the first nuclear power plants and the revival of private housing will help, but the hard fact remains that despite an increase in growth from 2013, output and employment levels in construction will not have reached their 2007-8 levels by the end of the forecast in 2016," she said.

"The sluggish return to growth means that we could be talking about a lost decade in construction and a loss of key trade skills, but the real shock is the impact that cuts to public sector spending has had."

Carillion subsidiaries covertly supplied information about Dave Smith to database of 'troublesome' workers

A major multinational company has accepted that an engineer was covertly blacklisted because he was a trade unionist seeking to improve safety on building sites.

Dave Smith, an engineer, has launched legal action as he says his income fell dramatically from £35,000 a year to £12,000 after he was put on the clandestine blacklist of 3,200 workers run by leading construction firms.

The 46-year-old from Essex told a London employment tribunal on Tuesday that he was denied work after he raised safety concerns with construction firms. "I was a qualified engineer and during one of the longest building booms this country has ever known, my children were on milk tokens," he said.

He is taking legal action against the construction giant Carillion, and two of its subsidiaries, in an attempt to recover £175,000 in lost earnings.

On Tuesday, Carillion accepted that Smith had been blacklisted but denied that it was legally responsible. The firm is arguing that it did not directly employ Smith as he secured work for its companies through an employment agency or subcontractor. Carillion's lawyers say the firm bought the two subsidiaries after they were involved in the blacklisting.

The existence of the secret blacklist was exposed in 2009, when investigators from a privacy watchdog raided an unassuming office in Droitwich, Worcestershire.

The investigators uncovered an extensive database that was used by construction firms to vet workers they deemed to be trade unionists and troublesome. For at least 15 years, more than 40 construction firms had been funding the confidential database, which recorded workers' trade union activities and conduct at work.

The watchdog, the Information Commissioner's Office, closed down the covert operation. A 66-year-old private investigator, Ian Kerr, was fined £5,000 for administering the database, although the construction firms escaped prosecution. Smith is one of a number of blacklisted workers taking legal action for compensation.

On Tuesday, Carillion admitted that two of its subsidiaries covertly supplied information to the database to "penalise" Smith for being a trade unionist, even though he had "reasonably brought health and safety concerns to their attention".

The tribunal was shown a copy of Smith's 17-page file from the blacklisting database. Stretching from 1992 to 2005, it contained detailed reports of his trade union activities and efforts to make building sites less dangerous – all recorded without Smith's knowledge.

The file also included details such as his national insurance number, political work, photographs, his car and the place where his brother worked. At one point, Smith is described by a manager in a Carillion subsidiary as "small and talking like a younger Alf Garnett". Some of the information was described by Smith as a "crude smear", such as the false allegation that he could have been involved in an arson attack on a construction site.

Carillion now accepts that its subsidiaries covertly fed information to the blacklisting database and disguised the source through the use of secret code numbers.

Smith told the tribunal: "Carillion and its subsidiaries have worked together to penalise me because of my trade union activities and because I raised concerns about workers' safety on building sites.

"They passed on personal information about myself and my family members, causing major financial hardship to myself and my family."

Smith's legal action comes as up to 100 blacklisted workers are preparing to start legal action in the high court to win compensation. At least three workers have won employment tribunals and received up to £24,000 in damages.

The tribunal continues.

Bovis Homes chief executive David Ritchie said: 'We're starting to improve profitability very significantly in a flat market'

Bovis Homes expects a "significant" increase in profits after building more family homes in southern England and ramping up the number of sales outlets.

One of Britain's smaller housebuilders, Bovis has improved profit margins by focusing on three- to four-bedroom homes, with its average selling price rising to £162,400 from £160,700, rather than smaller houses and apartments.

David Ritchie, the chief executive, described himself as "confident" rather than "optimistic". "We're starting to improve profitability very significantly in a flat market. We're now a bigger business than this time last year."

The Kent-based company expects to meet City forecasts of £31m in pretax profits in the year to 15 January. It will be marketing homes from 85 sales sites every week, on average, compared with 73 last year.

"We should see ongoing growth in volumes, price and margins, and the benefit of compounding those three is that your bottom line profit starts moving very quickly," said Ritchie. "We've had two solid trading weeks in 2012 so far, and I would expect the next few weeks to be very similar. People appear not to be put off from buying a new home."

Like other housebuilders, Bovis is focusing on the south. Three-quarters of its land bank now runs across the south from Devon in the west to Kent and Essex in the east. This compares with a 50-50 split between southern and northern England in 2007 before the financial crisis hit.

Ritchie hopes that the government's mortgage indemnity scheme, which is similar to the company's Perfect 10 product, will help bring first-time buyers back to the market.

Housebuilders have bounced back from their worst slump in decades even though the housing market remains flat. Rivals Persimmon and Barratt Developments also reported healthy trading last week.

Entire communities of new homes, built around central facilities offering medical care, community services and entertainment, are springing up around the country for the growing numbers of retirement-age Britons

Bob and Anne Sears look out at the walled garden from their two-bedroom cottage in a "retirement village" near Maidstone in Kent, and say: "We've never regretted moving here." Three years ago they sold their five-bedroom house in Essex and became the first people to move to Mote House, then still under construction by Audley, one of the biggest developers of retirement villages. Surrounded by 450 acres of parkland, a number of two- and three-bedroom homes have sprung up near Mote House, which dates back to George III and is now being converted into a country club for the elderly.

"We brought our furniture with us. To move somewhere and not be able to take our furniture would have been upsetting," says Anne. "If you need care, it's cheaper than being in a care home. Here you have all the carers," she adds. Anne is 68 and Bob is 84; with the age difference in mind, they feel she will be "looked after" in the village in years to come.

Butlins for the elderly or gated ghettos? Retirement villages are common in the US, New Zealand, Australia and South Africa, and are starting to spring up around the UK as baby boomers move towards retirement. People over the age of 65 now outnumber those of school age in the UK, and soon a quarter of the population will be over retirement age. The average retirement now lasts almost a quarter of a century, according to a 2010 report by estate agent Knight Frank.

In a typical retirement village, houses are grouped around country-club-style facilities at a mansion house, with doctors and nurses on call and a night porter. Facilities at the upmarket end usually include a restaurant, gym, swimming pool, library, hairdresser, fitness classes and lectures. The first-ever retirement community was Sun City in Arizona, built in 1960 and now home to 42,000 people.

Ashley Seager, co-founder of the Intergenerational Foundation, which backs retirement villages, said: "We are contacted by many old people who feel trapped in a big house and would wish to move to more suitable accommodation if only they could find some. Too much development in recent years has been of the wrong sort."

Some villages come with care homes attached, but not those built by Audley. Nick Sanderson, the company's chief executive, who also chairs industry body the Association of Retirement Village Operators UK, even believes that care homes can be avoided altogether.

In retirement villages, residents buy their own home and retain their independence, unlike in a retirement home. People living in these villages are less than half as likely to move to an institutional care home after five years of residence than those in standard housing, according to a study by the International Longevity Centre carried out in partnership with Audley, the Extra Care Charitable Trust and sheltered housing managers Retirement Security. They are also less likely to fall – and falls are the leading cause of death through injury for those over 75.

The average care home costs £26,200 a year while the average nursing home costs just over £36,000, according to healthcare information firm Laing & Buisson. Audley's properties sell for between £250,000 and £500,000, and residents also pay an average annual management fee of £6,000. The minimum age for residents is usually 55, although people tend to be closer to 75 when they move in.

Drinking tea from a mug that says "I'm not retiring – I'm moving to Mote House", Sanderson, who plans to settle in a retirement village himself eventually, rejects the notion of "gated ghettos". "It's completely not that. It's not a closed door." He stresses that friends and family visit at weekends – but there is no escaping the fact that elderly residents will be left to themselves for much of the time, and that the villages are often a drive away from the nearest town.

Richard Davies, chief executive of LifeCare Residences, which runs two retirement villages in the UK and is building a third one in Battersea in London, says the bulk of residents will come from within a five mile radius. "They all live in the local area."

Property prices at London's first luxury retirement village, near Battersea Park, will range from £400,000 to £2.5m for penthouse apartments. Despite the hefty price tags, Davies generally believes that retirement villages are "not a lifestyle choice but need-driven".

Living in a block of "retirement flats" is cheaper: homes in developer McCarthy & Stone's blocks near Liverpool, for example, cost from £129,950. There are also more affordable villages – ExtraCare offers properties for rent, part-purchase and purchase across the Midlands and the north.

However, rather than providing a stress-free retirement, some controversial operators such as Peverel, which looks after 65,000 retirement homes, mainly in McCarthy & Stone developments, and used to be part of Vincent Tchenguiz's empire, have come under attack over excessive fees and poor service – allegations it disputes. Unlike the care home sector, retirement villages are not regulated.

Just 0.5% of over-65s live in retirement villages in Britain, compared with 6% of elderly Americans (12% in some areas) and 5.5% of older New Zealanders. "The whole sector is still very much in its infancy [in the UK]," says Sanderson. But he believes retirement villages "will be the biggest thing in housing for the next 25 years."

Drop in factory prices may suggest inflation is also declining, clearing path for Bank to pump more money into UK economy

Prices charged by factories in Britain fell for the first time in 18 months in December, suggesting that inflation is coming down and leaving the door open for the Bank of England to pump more cash into the struggling economy.

The Office for National Statistics said output prices charged by producers, and their input costs, rose at the slowest pace since 2010 as crude oil and imported chemicals dropped in price in December.

Bank of England policymakers have predicted that inflation will come down sharply this year – it is currently more than double the government-set target – and the latest news on producer prices will bolster that view.

The Bank chose to stay its hand on printing more money at the end of its latest policy meeting on Thursday, but it is widely expected to expand its programme of quantitative easing (QE) as soon as next month in the face of stalling growth.

"Today's figures confirm that disinflationary pressure in the economy is building," Samuel Tombs, a UK economist at Capital Economics, said.

"They should help to convince the monetary policy committee that inflation will fall to well below its target in 2013 and therefore increase the chances that the committee will sanction more QE at next month's meeting."

The ONS said output prices fell 0.2% in December from November, the first monthly drop since June 2010. That left prices up 4.8% on the year – the slowest pace of inflation for a year.

But there were further signs that manufacturers were facing a squeeze on their margins, as rises in their raw material costs outpaced the price rises they feel able to demand from their customers.

Input prices rose 8.7% on the year, almost twice the pace of output prices, but that was the slowest rise since October 2010.

Business surveys suggest input prices could fall further in the coming months. Chris Williamson, the chief economist at the data specialist Markit, which publishes monthly surveys of manufacturers, noted that those reports show input prices falling at the steepest rate since June 2009.

"Companies reported that weakened demand for raw materials, both UK and globally, has meant suppliers have been keen to offer discounts to generate sales. This is something that is clearly being replicated on the high street, as consumers tighten their belts, and is good news for inflation," he said.

"However, oil could once again represent a fly in the ointment as tensions in the Gulf drive up oil prices for industry and households alike."

Separate data from the ONS showed output from the UK construction sector, which makes up 7.6% of the economy, rose 0.2% in non-seasonally adjusted terms in November, leaving it down 1.6% on the year.

Howard Archer, an economist at IHS Global Insight, said the data raised fears that the construction sector had contracted in the fourth quarter of 2011 and contributed to an overall decline in GDP.

"The soft November construction output data follow on from very weak industrial production data for November which suggest that the industrial sector – which accounts for 15.4% of GDP – is likely to have contracted by around 1.2% quarter-on-quarter in the fourth quarter of 2011," he said.

"Our current view is that GDP was essentially flat in the fourth quarter, but we are becoming increasingly concerned that the economy contracted modestly."

Despite falls across three sectors, the likelihood is that the UK economy moved sideways as 2011 ended

Will it or won't it? The weakness of Britain's industrial sector late last year has re-invigorated the debate about whether the economy contracted in the fourth quarter of 2011 and is on course for a double-dip recession. Official data will be published this month, and as things stand the consensus is that it is too close to call.

Here's how things stack up. The growth figure that will be released by the Office for National Statistics is based on the output from three sectors of the economy: services (more than 76% of the total); industry (just over 15%); and construction (a little more than 7.5%). So far there is only data for the services and construction sectors in October, while that from industry is a bit more up to date, covering both October and November.

Construction output dipped in October, while activity in the services sector was estimated by the ONS to be down 0.7%. Industrial production figures showed a 0.6% decline in November, following a 1% drop in October, and if there was no change in December there would be a 1.4% fall between the third and fourth quarters of 2011, enough to shave 0.2% off national output.

On the face of it, the signs are ominous, but it is not all bad news. Service sector output tends to bounce around, and the survey evidence from the Chartered Institute for Purchasing and Supply was relatively upbeat for November and December. But, as George Buckley at Deutsche Bank notes, even a chunky 0.8% increase in output in November followed by a further 0.5% jump in December would still only result in a 0.2% increase in the fourth quarter.

The warm weather should help construction output by keeping building sites open. As with services, the survey evidence has been stronger than expected.

Predicting the path of national output at the turn of the year is always tough because of the capriciousness of the elements and the concentration of consumer spending in December and January. The likelihood is that the economy moved sideways in the fourth quarter of 2011, and it would be something of a surprise if it grew by more than 0.2% or contracted by more than 0.2%.

Whatever the outcome, there has clearly been a slowdown in the final few months of the year prompted by a lack of consumer spending power and the crisis in the eurozone. Not much should be read into the decision by the Bank of England to do nothing at today's meeting. If Threadneedle Street is going to decide on more quantitative easing, February has always been the month to announce it. That still remains a real possibility.

Tall-building boom may indicate impending disaster in China and India, claims report by Barclays Capital

China could be the next country to go bust, if its headlong rush to build ever-taller skyscrapers is a guide to its future economic health.

According to a study by Barclays Capital, the mania for skyscrapers over the last 140 years is a sure indicator of an imminent crash.

It points out that the construction boom that threw up New York's Chrysler and Empire State buildings preceded the New York crash of 1929 and Great Depression.

More recently, Dubai built a forest of skyscraping offices, hotels and apartment buildings, including the world's tallest, the Burj Khalifa, before it got into terrible financial difficulties. In 2010 Dubai had to be bailed out by its neighbour, Abu Dhabi, to avoid going bankrupt.

Bar Cap's report said: "Thankfully for the world economy, there is not currently a skyscraper under construction that is planned to overtake the height of the Burj Khalifa."

However, BarCap said the "unhealthy correlation" between construction of the world's tallest buildings and economic crashes was likely to ensnare China, which is home to half of the world's skyscrapers currently under construction.

India, which has just two skyscrapers, sometimes defined as buildings over 240 metres (787ft) tall, is also on the radar after giving the go-ahead to its first skyscraper building boom, with 14 under way, including the world's second-tallest tower in the financial capital, Mumbai.

Andrew Lawrence, director of property research at Barclays Capital in Hong Kong, said: "Building booms are a sign of excess credit."

Lawrence said that historically, skyscraper construction had been characterised by bursts of sporadic, but intense activity that coincided with easy credit, rising land prices and excessive optimism, but often by the time the buildings were finished, the economy had slipped into recession.

China is already showing signs of fulfilling the prophecy. Its largest quarterly business survey showed that confidence among property developers had collapsed to a point where it was worse than the lowest point in the 2008 recession.

More worringly, the same survey revealed that confidence among construction firms, while a little down on the previous quarter, remained bouyant. Capital Economics, the independent analysts, said Beijing's decision to pump hundreds of billions of dollars into construction projects, bypassing private developers, has prolonged the building boom and potentially stored up a bigger crash.

Even funds pouring into residential schemes are at risk following years of high-rise developments near factories and businesses dependent on the west for trade. A recession in Europe that drags the rest of the world into a period of lower growth will hurt Chinese exporters, jobs and demand for property.

BarCap said signs of trouble were escalating in China and India. China had the dubious distinction of being the world's "biggest bubble builder," as it erected ever more and higher towers, it said.

Home to 53% of the 124 skyscrapers now under construction globally, China is primed to increase its stock of them by 87%. About 80% of new buildings are going up in cities away from developed coastal areas of the Pearl river delta and Yangtze river delta, which Barclays called "evidence of the expanding building bubble".

Lawrence, who was lead author of the report, said China's property market is already wobbling.

The number of residential property sales had decreased by 40-50% in Beijing and Shanghai and developers had slashed prices by 5-20%, he said.

India, which has just two skyscrapers but is building 14 more, takes top honours for hubris: The second tallest building in the world, the Tower of India, is now under construction in Mumbai.

Nonperforming loans in India — a substantial number of them to real estate ventures — grew by nearly a third in the first half of this fiscal year, more than triple the average annual growth rate since 2006, according to the Reserve Bank of India.

BarCap said: "If history proves to be right, this building boom in India and China could simply be a reflection of a misallocation of capital, which may result in an economic correction for two of Asia's largest economies in the next five years."

A branch of economics founded by followers of US economist Henry George has charted property collapses over the last 100 years and found that booms create the conditions for a downturn around every 18 years.

Fred Harrison, a Georgist and research director of the Land Research Trust, wrote in his 1997 book The Chaos Makers that "by 2007 Britain and most of the other industrially advanced economies will be in the throes of frenzied activity in the land market … Land prices will be near their 18-year peak … on the verge of the collapse that will presage the global depression of 2010."

Europe's tallest building could include exclusive space on 78th floor for top-level meetings, says building's developer

It would be the summit at the summit. The top floor of the Shard, Europe's tallest skyscraper, could be made available for high powered conferences and political talks, the building's developer has told the Guardian.

Irvine Sellar said he is considering making the 78th floor, which is so elevated it is sometimes above the clouds, an exclusive meeting space which would allow political leaders to hold talks with an unrivalled bird's eye view above London Bridge.

"We could send Europe's top politicians up there and not let them down until they solve the Euro crisis," he said

The highest room anywhere in Europe has space for up to 60 people and would be accessed by a dedicator elevator off the public viewing galleries.

The plan is being debated by Sellar and his architect, Renzo Piano. Already a four-storey public viewing area is being built starting on the 68th floor which is likely to cost around £20 to access.

But the developer, keen to recoup investment of around £2bn in the building, is aware of the revenue-generating potential for the even-higher space.

Piano, who said he believes the building "celebrates life and in some measure, poetry", has mooted an alternative use as a meditation suite and is said to be keen the space should not become a playground only for the super-rich and powerful.

At the Shard's upper levels, helicopters and planes coming into land at City airport fly along at eye level and on a clear day the view stretches 40 miles. Construction workers said it sometimes snows at the top while it is raining at ground level.

The idea has echoes of the Pyramid of Peace in Kazakhstan's capital Astana. That Norman-Foster-designed building has a 200-seat chamber at the apex for meetings of the leaders of the world's religions.

The 310m-tall Shard is due to be fully built next June and looks likely to open in the depths of Britain's economic slump. So far no tenants have signed up for the 27 floors of office space, although the developers said they are in talks with several and are being selective. It is 80% owned by the Gulf emirate of Qatar and has been described by critics as "a sharp piece of global capitalism" and "a latter-day pyramid celebrating the arrival of the Qataris on the world stage". But many Londoners have taken the building to their hearts.

Piano insisted that the building was not an out-of-date monument to "arrogance and power", and pointed out it could help save the countryside from sprawl. "This is not about money," he said. "It is about surprise and joy. This is about the way cities should go. They should stop and we should not go beyond the green belt. If you do this by going vertical that sends a message about conserving land. The building is not about arrogance and power but about increasing the intensity of city life."

Works have begun on fitting out an 18-storey five-star Shangri-La hotel within the Shard and ten huge apartments at its top, which are likely to sell for tens of millions of pounds each.

Sellar, whose company owns 20% of the tower, insisted the building was not out of sync with the era of austerity.

"If we want to get out of this malaise then this is the sort of project that should be done," he said. "We think it is a great image. It says, 'This is London, this is the Shard and we can kick sand in the face of the Eiffel Tower.'"

Unesco will next year consider whether to downgrade or even remove the World Heritage status of the Tower of London and Westminster Abbey in part because of the Shard's looming silhouette.

This month inspectors from the United Nations world heritage committee paid a four day visit to London to consider the effectiveness of measures to protect the World Heritage status of the sites.

"We are concerned that the sites might lose their outstanding universal value by being dwarfed by inappropriate development," said Patricia Alberth, programme specialist for the Europe area at Unesco in Paris. "They could decide to remove their status or decide whether they should be placed on a list of danger which means they could be delisted."

Renzo Piano's skyscraper, which will be Europe's tallest building, may provide a shot in the arm for London – or be merely a symbol of Qatari financial muscle

Slicing through the air above the dank and dripping Victorian tunnels by London Bridge is a new symbol of extraordinary confidence.

The glinting Shard of Glass has become the tallest building in Europe, rising higher than Canary Wharf's main tower, Frankfurt's Commerzbank and the Ostankino television tower in Moscow.

The 310-metre-high (1,017ft) building is scheduled to open in June, in what is forecast to be a continuing economic slump. But, experienced from the highest apartment on the 66th floor, thoughts of Britain's stagnation are obliterated by the mind-boggling views.

From the cavernous double-height living room more than 200 metres up in the air, the city of eight million people looks like a toy town. The London Eye becomes a fairground attraction and HMS Belfast a model boat. The twin stadiums – Olympic and Wembley – feel within touching distance. Trains inch along like millipedes into London Bridge station, while to the east the Thames curves out to the sea.

In certain weather all this is above the cloud deck. The spectacular views will next year go on sale to the highest bidder when apartments could fetch tens of millions of pounds each.

In all, there will be 27 floors of offices, three floors of fine dining restaurants, an 18-floor, five-star Shangri-La hotel with a spa, and 10 palatial apartments, each on average seven times bigger than a semi-detached home. A four-storey public viewing area is being built starting on the 68th floor which is likely to cost around £20 to access. The developer is even considering renting out the very highest room on the 78th floor for high powered conferences and political talks – summits at the summit.

"We could send Europe's top politicians up there and not let them down until they solve the euro crisis," said Irvine Sellar, the building's developer.

The architect, Renzo Piano, has mooted an alternative use as a meditation suite and is said to be keen the space should not become a playground only for the super-rich and powerful.

But how does all this, rising beside some of the poorest wards in the country, add up in Britain's listing economy? It is notable that so far no office tenants have signed up, although the developers say they are in talks with several and are being selective. The answer may lie in its ownership - the Shard owes its existence to a power play by a gas-rich kingdom more than 4,000 miles away.

From spring 2009, when construction began, Qatari wealth poured into the project. As the global economic crisis forced builders to down tools on sites across the UK, around £1.5bn – mostly from the Gulf – bankrolled the Shard.

Two of the apartments span two entire floors each and are expected to become London homes for members of the Qatari royal family. The Shard – 80% owned through the country's central bank – is now the jewel in the crown of the emirate's growing London estate, which also includes Harrods, the American embassy building in Grosvenor Square, and Chelsea Barracks.

The Qataris insist they are simply diversifying their investment holdings. But observers of Gulf politics believe there is a diplomatic purpose and regional one-upmanship at play. For example, some Kuwaitis and Emiratis are said to be jealous that Harrods, their favourite London shop, is owned by Qatar.

It was not meant to be like this. In 2000, when the Shard's silhouette was first sketched on the back of a Berlin restaurant menu by Piano, the project was wholly in the hands of Sellar, a former Carnaby Street trader, and his business partners. London's skyline was rising on a tide of easy credit and buoyant property prices. Lord Foster's gherkin-shaped tower for Swiss Re was about to be built in the City and plans for a cluster of taller towers – the "cheesegrater", the "walkie talkie", the "helterskelter" – were being drafted.

A planning inquiry followed the unveiling of Piano's design, which he charmingly said was inspired by the spires of London's old churches, and John Prescott, then deputy prime minister, gave his approval in 2003. But when it came to erecting the building, Sellar and his partners could not raise the construction finance because of the global financial crisis.

Qatari investors bought 80% of the project in January 2008, when it was valued at £2bn.

"The UK is a dear country to us," said the Qatar ambassador to London, Khalid bin Rashid bin Salim al-Hamoudi al-Mansouri. "We have been investing in this country before and after the crash. Our investment is a long-term investment. We don't need cash money now. This comes from a strategy of diversifying our economy over 10, 20, 30 years. We think the UK is the right place to put our investment. The UK is a strategic partner with our country."

The governor of Qatar's central bank, Sheikh Abdullah bin Saud al-Thani, has been more explicit about the diplomatic potential of the acquisition. He said he was confident the Shard would become "a symbol of the close ties between Qatar and the UK".

Dr Christopher Davidson, an expert in the politics of the Gulf at Durham University, said the Shard played a part in Qatar's programme of "soft diplomacy" with countries such as the UK and US that provide it with security guarantees.

"The invasion of Kuwait is still fresh in the memory of rulers in the Gulf and being invaded for your petrochemical wealth remains a nightmare," he said. "Qatar is in a tight spot between Saudi Arabia and Iran and its very survival rests on the west's guarantee. The thinking goes that if someone invades a country that has the highest skyscraper in London, then surely the UK should come to the rescue."

For Davidson, the Shard is in the same category as Abu Dhabi's purchase of Manchester City Football Club. "It is high-profile and won't necessarily turn a profit, but the benefits are non-pecuniary," he said.

Such talk about hidden agendas for the building makes Piano uncomfortable.

"This is not about money," he said. "It is about surprise and joy. This is about the way cities should go. They should stop and we should not go beyond the green belt. If you do this by going vertical that sends a message about conserving land. The building is not about arrogance and power but about increasing the intensity of city life."

He compared the project to the Pompidou Centre in Paris, which he designed with Richard Rogers in the mid-1970s. It turned the model of the fine art gallery inside out, placing the building's innards – its ducts, pipes and structure – on the facade.

"Architecture is not neutral, it celebrates something," he said. "When we built the Pompidou Centre it celebrated rebellion against the idea that culture should be intimidating. The Shard will celebrate community, the sense of the city, the sense of exchange. I think the building will become loved in London because it is not arrogant. Normally towers are not loved because they shut down at 6pm and you have a black glass block. This is not about money or power. It is about surprise and joy."

While many Londoners have already taken the building to their hearts, some locals are puzzled by their new neighbour and are struggling to understand its economic rationale.

"None of it hangs together and to me it seems commercially absurd," said Russell Gray, owner of the Tanneries, a small business complex created from restored Victorian warehouses close by. "But that doesn't matter if what you are after is a latter-day pyramid celebrating the arrival of the Qataris on the world stage."

Sellar couldn't disagree more and believes the building is the kind of counter-cyclical investment the UK economy needs. "If we want to get out of this malaise then this is the sort of project that should be done," he said. "We think it is a great image. It says, 'This is London, this is the Shard and we can kick sand in the face of the Eiffel Tower.'"

More than 2,000 16- to 24-year-olds in Southwark not only have no work, but are also not in education or training. The council is hoping to use £4.4m obtained from the developer in the £15m planning gain agreement to transform this small army and others into "a supply of enthusiastic, job-ready, local young people and adult jobseekers".

There is hope that people could train at Southwark College as beauticians to work in the spa at the hotel, as fitness instructors for the gym, and as florists, shop assistants, security guards, secretaries and office managers, although council papers reveal that "there is no obligation on the tenants and businesses in the completed development to provide job opportunities".

So far the council can boast that "up to the end of September, the key output is 40 local people into jobs in the building".

"There has been a failure of imagination," said Nick Stanton, a Liberal Democrat and former leader of Southwark council. "There should be something in this building that the community uses on a daily basis instead of just walking around it. There should be something like a library in it … one of the frustrations I had as leader was the inability to link a big project like this to local outcomes."

Tony Travers, director of the Greater London Group at the London School of Economics, said it was a "tower of power and riches" in a poor borough. "It points to the paradoxical nature of property development in cities such as London. In order to bring about transformation it is necessary to accept gentrification. It is inevitable the arrival of a sharp piece of global capitalism is an odd incursion into a borough that is still authentic old Victorian London."

The appearance of the building has created what Travers calls a "new mental geography" of the capital. For example the presence of the Shard makes suddenly obvious what every London taxi driver already knew: that the quickest way from Westminster to the City is via the South Bank.

Lord Prescott, who approved the tower in the face of stern opposition from English Heritage, has watched it "growing all the time" from his flat in the Parliament View complex by Westminster bridge.

"It was a difficult decision that I was faced with about high-rise buildings along the Thames," said the former deputy PM. "I thought this one was interesting. The Shard was in a part of London on the South Bank that needed to be developed as well. From what I have seen of it, it will achieve that. I thought its design was very striking and significant and part of modern cities and on the South Bank, whereas before the thinking was that high-rise buildings would be in Canary Wharf. Were we simply going to locate them there or would there be a regeneration argument for locating them on the South Bank?"

Over the river in the City, the Corporation of London appears miffed by the Southwark upstart. It has urged the London mayor, Boris Johnson, to prevent the Shard being used as a precedent by other developers to disregard protected viewing corridors that restrict development around St Paul's, the Tower of London and Westminster Abbey.

Piano is unperturbed by criticism it is too dominant on the horizon and says "the building disappears into the sky".

"This is the most important moment when you realise what the building will be like in the city," he said. "I think it is what I wanted. It is going to be sharp. It is not going to take away light. It is a building that will reflect the humour of the weather because the shards are not vertical, they are inclined. It will reflect the ever-changing process and colours of the sky."

Sellar, for his part, is sure the building will become a new icon. "People will feel proud," he said. "This is London. This is the Shard."

Years of slow growth feared after Olympics building boom comes to an end

Near St Helens on Merseyside, Pilkington's Greengate factory spews out more than 10,000 tonnes of glass every week for the construction industry in sheets of varying sizes and colours; its two furnaces have not been turned off in the last 18 years. Sir Alastair Pilkington pioneered the "float glass" process – in which molten glass is formed into sheets by laying it on top of a bath of molten metal – 60 years ago, and it has been adopted as the standard for making flat glass around the world.

The 185-year-old company, now owned by Japan's Nippon Sheet Glass, has not fared too badly in the economic downturn. And at its rival on the other side of town – the Saint-Gobain factory in Mill Lane, which makes glass for shops, offices, schools and hospitals – operations director Steve Severs says: "None of the sectors are enjoying a strong time, but we won't suffer as much as a newbuild housebuilder. A glassmaker like us suffers from a lower newbuild level but does have replacement glazing opportunities to also supply."

But despite guarded optimism in one corner of the industry, construction as a whole is going to be one of the biggest casualties of the government's austerity squeeze. And the worst looks like it is yet to come.

"Some public sector projects are still ongoing but they will finish; the Olympics will finish as well and there will be a long road to see what next?" says Michael Conroy Harris, construction specialist at law firm Eversheds. The most optimistic would say the downturn will last two years, but some reckon it could be a decade if the public sector cuts go ahead, he adds. "There are no real signs of an upturn just yet and confidence, if anything, seems to be falling away. The impact of the national infrastructure plan will be interesting to see, although I think the reality of that is that it will take some time for the projects to feed through," he says.

The plan comprises 500 projects the government wants to see built over the next decade. In his autumn statement, chancellor George Osborne gave the green light for 35 new road and rail schemes across the country. "The coalition is clearly a believer in infrastructure and has reduced operating expenditure in order to boost capital expenditure," says Joe Brent at Liberum Capital.

The government has pledged to spend an extra £5bn on infrastructure improvements in the next three years, with an additional £20bn to come from private sector sources, although details are vague. Despite the £5bn boost, capital investment will still fall by 30% (around £14bn) between 2010-11 and 2013-14, and most of the £5bn boost will come from 2013-14 onwards.

While the government is sticking with austerity for the moment, Brent believes that "there are plenty of schools and hospitals which have been put on hold and could be brought back rapidly should the government be looking to stimulate".

Grim picture

All the recent figures paint a grim picture in the construction industry, which makes up 8% of the economy. New orders hit their lowest levels since 1980 in the summer, according to the Office for National Statistics.

Construction tends to be one of the first industries to go into recession, and one of the first to come out. Big public and private sector projects are mothballed, while consumers tend to become more reluctant to fork out thousands of pounds for a new bathroom or loft conversion in uncertain times. And consumer confidence appears to have hit rock bottom, with the eurozone debt crisis threatening to push western Europe back into recession and Britain also teetering on the brink of another severe downturn.

In many countries, the share of the economy made up by construction has fallen sharply over the past decades. Construction as a percentage of GDP is the lowest in 55 years in the UK; it is at a 19-year low in the US and a 25-year low in France and Denmark.

The UK building industry is dominated by small firms – 93% of companies employ 14 or fewer people – which have been particularly hard hit. Builders' and plumbers' merchants in the supply chain are also suffering.

"We're being squeezed in every single direction," says Kevin Ellis of master builders Ellis & Hughes in Leicester, which specialises in designing and building extensions. He says £650,000 worth of jobs has been postponed in the past three months – the equivalent of just over half a year's work.

"North of Watford the situation is pretty dire. We in the north will benefit very little from easier access to lending. The only way to galvanise the building industry is to remove VAT on extensions and that sort of work."

Hundreds of construction and building-services firms have gone bust, including high-profile failures such as Connaught and Rok. The latest figures from insolvency specialists Begbies Traynor showed a 41% rise in companies facing "critical" distress over the last 12 months.

"The 1990s recession in construction was particularly bad," says Liberum's Brent. "Time will tell if this construction recession is worse than the early 1990s."

Notwithstanding the national infrastructure plan, there is still currently a dearth of big infrastructure projects. It is uncertain whether High Speed 2, the planned £32bn fast rail line between London and the Midlands, will go ahead. If it does, it could pick up the slack from London's £14bn Crossrail east-west commuter line project, due to finish in 2018. Opportunities may also present themselves in the electricity generation sector, either in the form of power stations or renewables installations.

But Britain's housing shortage, already bad, looks as if it will simply get worse. Over the lifetime of the current parliament (2010-15), the gap between what accommodation is needed and what is going to be built – 520,000 houses – is greater than the size of Birmingham (420,000 houses), the Federation of Master Builders estimates.