UK tender prices up

10 March 2016

Tender prices in the UK rose 5.4% year-on-year in the third quarter of 2015, according to the latest report from RICS’ (Royal Institution of Chartered Surveyors) Building Cost Information Service (BCIS).

However, the rate remained the same compared with the second quarter of 2015.

The annual increase has almost halved in size from those increases seen in most of 2014 and early 2015. This is seen as an indication that contractors are starting to cope with the strong increase in workload.

Materials prices fell 1.1% in the third quarter of 2015 compared with the previous quarter, and 2.3% compared with the same period a year earlier. The decreases went against the annual inflation rise of 1.1% in the third quarter of 2015, however the price of oil and steel billet continued to fall – resulting in the overall materials price decrease.

The annual rate of change in materials prices is expected to rise 2% in the fourth quarter of 2016, and around 4% over each of the next four years.

With income costs also increasing by an annual rate of 3 to 4% over the next five years, total input costs are expected to rise by a similar amount – while ONS (Office for National Statistics) data also shows that employment in the construction industry rose 5% in the third quarter of 2015 compared with the same period in 2014.

Growth in new work output is predicted to continue to rise around 4% in 2016, dipping to 3% in 2017 and rising again to 5% in 2020.

Meanwhile, the latest Markit/CIPS (Chartered Institute of Procurement & Supply) UK construction PMI (Purchasing Managers Index) data showed a 10-month low in construction output growth in February, falling to 54.2 from 55.0 a month earlier.

Chris Temple, engineering and construction leader, PwC UK, said, “The UK construction sector is undoubtedly facing a number of domestic and external economic challenges, from volatile commodity prices and supply chain costs to the uncertainty around the forthcoming EU Referendum.

“In the last UK Budget we saw the UK government announce a bold ambition to build 1 million new homes over the course of this Parliament, alongside a raft of policy measures and subsidies aimed at promoting home ownership for first time buyers and the impact of this should start to flow through as projects get off the ground.”

Temple added that major infrastructure projects such as the Hinkley Point nuclear plant would help bolster the sector, enabling businesses to develop longer-term investment strategies.

Martin Bennett, regional director at the Vinden Partnership – a consultant company to the built environment, said, “The coming months should give us a clearer picture of where exactly the construction industry is and reveal whether this nervousness over taking on new projects is justified.”

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