Tender forecast holds steady despite dip in output

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The UK’s construction sector suffered a triple blow in the first quarter of 2018, with a combination of poor weather, the continuing impact Carillion’s collapse and a slowdown in work resulting in market conditions weakening further. 

The poor weather had a significant effect on construction output in the first quarter meaning the industry was back in a technical recession. It was also its third quarter on quarter drop in the past twelve months as the industry struggles to push on. 

Falling output, weaker new orders in several sectors – as well as Carillion’s collapse and Brexit – are all contributing to the current mood of uncertainty and the increasing pressure on the supply chain to secure pipeline beyond 2018.
Despite this, Mace’s latest tender cost forecast for the UK construction sector remains steady, at 1.5% tender price inflation nationally and 1% in London for the year. 

The report shows that as expected, material price rises are continuing to ease but the slowdown so far has been gradual and prices are still over 10% higher than at the start of 2016. With producer price inflation substantially lower than at the end of 2017, a further reduction in the pace of material inflation is likely. 

As a result, firms will continue to face rising input costs but will be limited in how much they can pass these on. Apart from in infrastructure, new orders continue to point to subdued conditions in the sector and for clients going ahead with work, price sensitivity will remain as important as ever

Steven Mason, Mace’s Managing Director of Cost Consultancy, said: 

“Falling construction output and weakening growth in the UK economy as a whole has done nothing to ease the sense of caution and uncertainty in the property and construction market in the first quarter.

“Despite these ongoing concerns and an increasing appetite to secure workload in 2019 and beyond, the persistent impact of strong input prices will continue to maintain a modest positive effect on forecast tender prices for 2018.”
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