A report by the RICS' Building Cost Information Service (BCIS) published today reveals that raw materials and labour costs have risen 12.2% over the past year and could leap a further 12% over the next two years.

Infrastructure output rose by 8% and new orders by 26% in Q1 2008, with the sector expected to be one of the few growth areas in UK construction over the next few years. However, the rises in the costs of cement, steel piling and fuel are having a dramatic impact on civil engineering construction costs.

As a result some projects could face "delays and, at worst, cancellation" because of the cost situation.

The report warns that the government may have to put up extra cash for large-scale public sector infrastructure projects such as Crossrail and those linked to the 2012 Olympics due to significant increases in costs.