THE Construction industry remains optimistic about future prospects, despite slower growth in the fourth quarter of last year.

According to The Construction Confederation's latest quarterly trends survey, initial caution following September 11 has eased.

However, with costs rising faster than prices, a squeeze on margins is beginning to erode the improvements made in the past two years.

As a result, building contractors reported a second successive quarterly decline, while civil engineering contractors revealed a third successive quarterly deterioration in margins.

The overall balance reporting higher output slowed to plus 11 per cent, from plus 32 per cent in the previous quarter.

Despite a slight dip in private commercial output and enquiries, contractors are hopeful of an early recovery.

John Gains, president of the Construction Confederation, said: "There is still a great deal of optimism about within our industry and, although the survey reports slower growth in the last quarter, we should not lose sight of the fact that output is still increasing.

"Expectations of an early improvement in private commercial work, following the dip last quarter, is significant because this sector represents almost 20 per cent of all construction output.

"It is too early to assess the full significance of the squeeze on margins - this may be just a pause or it could indicate a more long-term trend.

"Although further cost increases are expected in the first quarter of 2002, the rate of increase appears to be slowing. It is also very encouraging to find evidence that skill shortages are easing across all categories of employment."

Key survey findings included:

* Output growth slowed in the fourth quarter and enquiries were flat.

* Private new housing output weakened, while public new housing remained depressed.

* Private commercial construction output and enquiries dipped slightly in the fourth quarter and private industrial output and enquiries fell. Public building output rose modestly in the fourth quarter.

Mr Gains said average earnings had risen by 6.5 per cent.