As the construction industry continues to count every penny and hope that economic recovery is just around the corner, a leading UK utilities business is focusing on the cost of water.

Northumbrian Water today became the first such group to warn that its future profits hinged on this week's crucial decision by the water regulator over price controls for the next five years.

The company said that it had met Ofwat officials to "make representations" over Ofwat's proposed controls.

Ofwat's draft plan in July surprised most players in the water industry by calling on it to cut bills, rather than allowing price rises. Thames Water is also seriously considering a legal challenge.

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Northumbrian Water reported that pre-tax profits rose by 13% to £87 million in the six months to September, thanks to lower interest charges on its debt, but said that it was being hit by the economic downturn as demand for water and sewerage services fell as some major industrial customers on Teesside shut down.

Most analysts do not number Northumbrian among those water companies that will be forced to raise equity by Ofwat's determination, which will cover the five years from April 2010.

Northumbrian was careful not to directly criticise the draft determination but John Cuthbert, the company's Managing Director, told today's London Times: "Income and costs at Northumbrian Water Limited have been adversely affected in the period by business closures in the North East."

(BMcC/KMcA)