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The falling price of oil, diesel and related products has cut contractors costs, but how much of the saving should they pass on to customers? That's the question.
Brent crude has fallen from more than $100 a barrel to around $50 in the past six months. Petrol at the pump is nearly down to £1 a litre from around £1.30. However, there is no way of knowing for how long these prices will remain in place.
According to Chris Temple, engineering and construction leader at accountant PwC, this presents contractors with a dilemma to which he appears unable to offer any solution.
“The sharp fall in oil prices has had the inevitable effect of decreasing input prices. However, as low oil prices continue, construction firms will come under increasing pressure from customers to pass the savings onto them, particularly as current sentiment suggests that the low prices may be sustained for some time,” he said.
"The conundrum for construction firms will be whether they assume that low oil prices will continue for a sustained period, and set their prices accordingly, or build in the possibility of an oil price rise, which could risk their customers moving to cheaper competitors. It will be a tricky balancing act but sitting on the fence may not be an option."
Mr Temple was speaking in response to yesterday’s release of the latest Markit/CIPS UK Construction Purchasing Managers’ Index (PMI), which showed a rebound from 57.6 in December to 59.1 for January. (See previous report here.)
Mr Temple said: "As expected, the brief slowdown in construction growth towards the end of last year has not continued into a slump but was merely the construction sector catching its breath after the high growth seen in 2014. The positive outlook reported in the survey also chimes with what we are seeing with our clients, most of whom are predicting solid growth in excess of 3% for the sector in 2015.”
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