Perspectives

Material price inflation drives tender forecast increase

3 min read

In the latest edition of Market View, Mace revises up its forecasts, with tender price growth now expected for this year.

Significant changes in material price inflation have resulted in an upgrade to tender forecasts, with Mace’s Q2 2021 UK Market View also giving insight into how the drive for sustainability and net zero carbon has the potential to affect tender prices in the long-term.

After predicting that tender prices would drop in the Q4 2020 report, this quarter’s Market View projects tender prices will grow nationally and in London by 1.5% this year, before peaking at 3.5% in 2023. After this, prices will ease in line with the economy, coming down to 2.5% in 2024.

The report considers how the increase in the price of products including steel, timber and concrete, caused by a lack of supply and the volatility caused by the initial lockdown period, alongside Brexit implications, has impacted tender prices.

Despite higher material costs, construction output was 2.4% above its February 2020 level, with the industry now in recovery. Notably, some sectors, such as repair and maintenance and infrastructure, have fared significantly better than others. Private industrial, which is down 27%, and private commercial, which has dropped 10%, serve as clear examples of challenged sectors. As a result, all new work is still lower than 13 months ago.

With the economy steadily reopening, alongside the easing of restrictions, an expansionary Budget, the extension of furlough, and the Bank of England making upwards revisions to GDP growth, this quarterly edition of the UK Market View highlights that sentiment across the sector continues to rebound as demand increases. Moving forwards, this will only serve to accelerate tender price growth.

Steven Mason, Managing Director for Cost Consultancy at Mace, said:

“The tide of uncertainty that the construction sector and wider UK economy has experienced from the impact of Brexit and Covid-19 appears to be finally turning, with global supply problems and resilient levels of demand driving dramatic increases in forecast tender prices.

While demand in some sectors remains weak, the overall picture and sentiment for construction and infrastructure projects looks increasingly positive. With a risk averse supply chain that is reluctant to absorb the impact of these rising input costs, we anticipate a larger than expected impact on market prices and have adjusted our forecasts for 2021 upwards to reflect this.”