Increased government-funded work drove construction growth during the third quarter of 2003, according to the Construction Industry Trade Survey compiled jointly for the first time by the Construction Confederation and the Construction Products Association. However, product manufacturers\' sales indicate that the overall pace of growth fell short of the unsustainably high 8% year on year rise recorded for the previous quarter, while building contractors report further declines in industrial and commercial output.

Industry expectations remain largely positive, with a net balance of 12% of building contractors reporting above normal order books and 15% reporting an increase in enquiries.

Both building contractors and product manufacturers report some easing in building cost inflation during the third quarter, consistent with the moderation in output growth, but underlying pressures remain.

Rising raw material prices, together with higher fuel and employment costs and an increased tax burden, are putting manufacturers\' unit costs under pressure. However, the pace of material price rises has slowed. Rising labour rather than material costs are the main pressure point for building contractors.

The rise in construction output over the last three years has improved the capacity utilisation of building contractors and product manufacturers alike. However, the pace of growth is expected to moderate over the next year and to be increasingly focussed around the delivery of promised Government investment in the built environment.

Both producers and contractors are investing and anticipate that they have sufficient capacity to accommodate the expected rise in activity over the next year.