Tender costs: depressed growth expected until 2020
Mace’s cost consultancy business has published its 2017 Q2 tender cost update, including forecasts for 2020 and 2021 for the first time.Forecasts for 2017 and 2018 have remained unchanged at 2.5% and 0.5% respectively (1.5% and 0% in London). Large material price rises drive the increase this year, while Brexit related economic uncertainty and weak growth hold back the 2018 figure.
Further ahead, Mace expects prices to rise steadily as clarity around the impact of Brexit grows and the sector’s confidence improves.
Recent figures show that construction output overall fell in the second quarter of 2017, wiping out much of the gain in growth that the sector saw in the first quarter of the year. Overall GDP growth remained weak but improved very marginally from 0.2% to 0.3%.
On a month-by-month basis, inflation in material prices in construction dropped from 6.2% in April to 5.1% in May. On this basis we expect that the worst of the material price rises this year to be over.
Steve Mason, Mace’s Managing Director of Cost Consultancy said:
“The continued uncertainty as to the final outcome from Brexit is resulting in mixed messages for the market. An anticipated market downturn is countered by steady workloads and a consistent level of bidding activity.
“In many ways, little has changed for a number of months and while there appears to be an expectation of a fall at some point, this apprehension has existed since the referendum last year. We fully expect this overall sentiment to continue, with our forecast tender price increases holding steady due to continued exchange rate pressures and material price rises being tempered by an increasing appetite for secured workload in 2018 and beyond.”
Brian Moone, Mace’s Director of Supply Chain Management, said:
“There has been no change to any of the lead times this quarter and the majority of packages are at the highest level since monitoring began in 1998. Companies are also forecasting no change over the next six months as workload level-off, indicating the majority of package lead times have peaked.”