Weak demand in the construction industry is holding back the economic recovery, said the Federation of Master Builders (FMB) in response to the news that the UK economy shrank again in the second quarter of 2012.

Brian Berry, Chief Executive of the FMB said: "Once again, today’s GDP figures are not a surprise to small and medium sized businesses in the construction industry and the remainder of this year is, without doubt, looking gloomy. The latest industry forecasts predict construction output to fall by nearly 6% before 2014. Among our own members 47% reported a fall in enquiries in the three months to June.

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Mr Berry continued: "On the one hand we know the Government recognises the importance of construction to the economy. Officials know that every £1 invested in construction generates £2.84 in total economic activity. But on the other hand, the initiatives coming through from government are not enough to offset the deep cuts in public spending.

"The private sector is not leading the economic recovery in the way the Government hoped. Therefore, we think it is now time for the Government to think more openly about stimulating private sector demand, particularly for the industry's hundreds of thousands of small businesses. The Chancellor should cut VAT on all housing repair, maintenance and improvement work to 5%, which would provide a big stimulus to the UK economy and create over 100,000 new jobs by 2020. It would provide immediate help to private landlords or local authorities to bring more existing properties back into use, and provide a bit more certainty about demand for the Government’s flagship energy efficiency scheme the Green Deal."

(CD/GK)