British construction group Morgan Sindall said growing demand for office buildings was helping to offset the impact of government spending cuts on its business, although the construction recession was not over yet.

“The commercial side is growing, but let’s not over exaggerate – it’s growing a bit but not as quickly as governments are spending less,” Executive Chairman John Morgan told reporters after the construction group reported a three percent fall in first-half profit.

Morgan, who co-founded Morgan Lovell in 1977 before it combined with William Sindall in 1994, said public sector work now accounts for about 50 percent of the group’s work, down from 60 percent.

Morgan Sindall, which fits out offices and builds schools and houses, said its order book had grown to £3.7bn ($5.9bn) from £3.2bn at the start of the year, although the outlook remained tough.

“It’s been challenging for a couple of years now and the recession in construction is not over yet,” Morgan said.

“If you look back at statements from Morgan Sindall or anyone else in the sector, you’ll see a challenging outlook, but to be honest the numbers are in line with expectations,” said Panmure Gordon analyst Andy Brown.

John Morgan said the group’s housing business, Lovell, could benefit from the woes of social housing repairs specialist Connaught, which is in crunch talks over funding after warning on profit.

Morgan Sindall said in its results statement that the outlook remained robust for new build social housing and refurbishment.

For the six months to end June, the group reported adjusted pretax profit of £23.1m, compared with £23.9m last year.

It maintained the interim dividend at 12 pence per share and increased its net cash balance 55 percent to £128m.