Perspectives

Sluggish growth sees continued price pressures

Mace’s cost consultancy business has published its tender price forecast for Q1 2017 in the UK, which has maintained its forecasts for 2016 and 2017 as the economy remains stable.  

We still expect slightly weaker tender price growth in London than the rest of the country with the commercial sector not performing as strongly as in previous years. Construction growth has started to slow but firms are optimistic and will attempt to pass on the higher input prices they are facing. 

As the UK negotiates its exit from the European Union, conditions in 2018 and 2019 will prove tough and we do not foresee any substantial increase in tender prices. But unlike this year, there should be little pressure from exchange rate movements and as such, tender price growth will be marginal.

Steve Mason, Managing Director of Mace Cost Consultancy, said: “The last quarter has seen little change in sentiment with continued strong demand despite a background of ongoing uncertainty. Significant increases in material costs affecting key trades and ongoing market capacity issues continue to have a positive impact on tender prices. The snap election may cause a temporary slight slowdown in some sectors but we would expect a swift recovery.”

Material price inflation will remain high for much of the rest of the year and short of the industry seeing considerable decline in output, firms will try to pass on these costs. 

Brian Moone, Director of Supply Chain Management at Mace, said: “There are signs that lead times are beginning to increase again following the low level of movement last quarter. Four packages including steelwork, architectural metalwork, lifts and mechanical services have increased lead times due to increased workload whilst fire detection and piling have capacity and therefore reduced lead times.”

Mace’s Cost Consultancy business produces a quarterly UK Tender Cost Update, offering a snapshot of construction market conditions and movements to help businesses spot and understand trends across the industry and plan accordingly.