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Wed June 29 2022

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Chip shortage adds to construction inflation pressures

8 Mar Construction economists at Arcadis have upgraded their inflation forecast on the back of sustained market demand and a global shortage of semiconductors.

Arcadis has upgraded its overall 2022 forecast, driven by a combination of energy costs driving material price inflation, an increase in national insurance rates and uncertainty about the construction materials availability.

Construction consultant Arcadis says that material price inflation should be less of a problem in 2022 but, with the cost of living squeeze and personnel shortages, labour cost pressure will emerge in its place.

Arcadis expects tender price inflation to peak at 5% for building work in 2022, both in the capital and regionally, and reach 6% for infrastructure work.

The analysis is within Arcadis’ Spring 2022 Market View. The quarterly analysis of the UK construction market looks across sectors and regions to estimate a tender price forecast to help financial decision making for projects and programmes.

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Arcadis says that construction has returned to normal levels of activity with both orders and output reaching pre-Covid levels in late 2021. Inflationary pressures and other sources of supply chain disruption ramped up during the second half of 2021 led by rising energy prices. Material price inflation and energy costs continue to be a challenge. An additional issue is the labour market following the loss of more than 200,000 operatives in two years, including a significant proportion of migrant operatives. A tighter supply of skills at all levels in the industry means that short and mid-term inflationary pressures will continue to grow, Arcadis says.  In addition, unions representing 500,000 operatives have put in a claim for a 10% pay rise for 2022.

The current global shortage of semiconductors, a hangover from covid pandemic industry shutdowns, is also impacting the construction sector. Chips are vital components for all kinds of manufacturers, many of them part of construction supply chain.

Agnieszka Krzyzaniak, global research manager at Arcadis, said: “Make no mistake, the current semiconductors shortage is already showing signs of impact on the construction sector. Chips are present in virtually every electronic component we use and essential part of building controls and safety systems. There is little prospect of supply chains stabilising in the immediate future, and now is the time for clients to encourage close and early engagement of their sub-contractors with the manufacturing and distribution supply chains. Secure your spot in the waiting line as quickly as possible. Just around the corner, there are thousands of wind turbines and solar panels needed for energy transition, waiting to get their share of the chips supply.”

The full UK Spring Market View is available to download at

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