Tender prices and new work output continue to grow at solid rate in UK construction market

Tender prices rose by 1.1% in the second quarter of 2015 compared with the previous quarter, and by 4.7% compared with the same quarter in 2014, according to the latest report from RICS’ Building Cost Information Service (BCIS).

The BCIS report predicts that annual tender prices are expected to continue to rise over the next six months, but at slower annual rates than over the preceding four quarters (2Q14 to 1Q15), as contractors begin to cope with the strong increase in workloads.

Materials prices fell by 0.4% in the second quarter of 2015 compared with the previous quarter, and by 0.8% compared with the same quarter a year earlier. This is the third consecutive quarterly fall in materials prices.

Interestingly, the price of European Brent crude oil has fallen by 44% annually – but risen by 12% in the second quarter of 2015 compared with the previous quarter. This affects projects in the civil engineering sector more than in the building construction sector – as oil related products form a much greater proportion of civil engineering costs than building costs.

However, it is expected that overall materials prices will rise sharply in the year to third quarter of 2016, increasing by 4.6%, driven by rising metal prices and oil derivative prices. Over the remainder of the five year forecast, materials prices will rise at a steady rate of 4% per year.

With wages costs also increasing by an annual 3% to 4% over the next five years, total input costs are set to rise by a similar amount.

It is anticipated that strong growth in new work output will continue in 2015, but the growth will slow to between 3-4% over the next four years – still ahead of the long term annual growth rate – before returning to stronger growth in 2020 (5%).

Peter Rumble, head of forecasting, BCIS said: “The UK construction industry continues to show signs of growth, this reflected in the BCIS forecast which shows strong increases in new work output. While this growth will slow a little over the next four years, it will still maintain momentum with resurgence to a high 5% growth rate in 2020. As a result, tender prices are forecast to rise by 5.5% in the year to third quarter 2016. Moving forward, as workloads continue to increase, tender prices are expected to rise between 5% and 6% per year over the remainder of the forecast period.”

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