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Surveyors say tender prices have bottomed out

30 Aug 13 Industry economists report that the rise in tender prices seen at the end of last year can now be confirmed as representing a bottoming out.

In the first quarter of 2013 tender prices were down 1.7% on the previous quarter but 5.6% up on the same period of 2012, according to the Royal Institution of Chartered Surveyors’ Building Cost Information Service (BCIS).

However, neither of those numbers tells the full story, BICS said.  

The fall in tender prices in first quarter 2013 is not seen as a return to falling prices, but more of a settling down at the higher level seen over the previous two quarters.

The strong year-on-year increase is exaggerated by the significant fall in tender prices seen in Q1 2012.

However, the fluctuation in the BCIS All-in Tender Price Index over the preceding quarters reflects a market caught between rising input cost pressures, both current and future, and the downward pull of construction workload, BCIS said.

Materials prices remained unchanged in Q1 2013 compared with both the previous quarter and a year earlier. For the construction sector as a whole, average weekly earnings (AWE) fell by 1.3% compared with a year earlier. By comparison, across the economy as a whole earnings grew by 0.8%.

The total volume of construction orders remained unchanged in Q1 2013 compared with the same quarter in 2012, but fell by 10% compared with Q4 2012. 

Comparing Q1 2013 with Q4 2012, the public non-housing and the private industrial sectors saw double digit increases, with a rise in orders of 10% and 12% respectively.

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However, the infrastructure sector saw orders fall 50% on the previous quarter and 39% year-on-year. The infrastructure sector had previously been boosted by a 50% rise in order throughout 2012, BICS said.

Total construction work output for Q1 2013 fell by 2% compared to the previous quarter and by 6% compared with Q1 2012.

New work output fell by 3% in Q1 2013 compared to the previous quarter and by 8% compared with Q1 2012.

Year-on-year, all new work sectors experienced a fall in output in Q1 2013, BICS said, with the exception of the private industrial sector where output increased by 7%. 

BCIS information services manager Peter Rumble said: “Latest data suggests tender prices have bottomed out and are anticipated to rise slowly over the first year of the forecast period, slightly ahead of building costs. As demand improves towards the end of the forecast period in 2018, tender prices are expected to rise more steeply, as contractors in an improving market try to recoup some of the losses incurred over the recessionary years.

 “While new work output is expected to fall again in 2013, although to a lesser degree than in 2012, we anticipate a return to modest growth in 2014, with the recovery gathering momentum over subsequent years. Strong growth is expected in the infrastructure sector, over the forecast period, with the government investing £70bn into infrastructure projects between 2015 and 2021. The initial recovery will also be driven by the private housing sector partly as a result of various government initiatives designed to boost the housing market.

 “The forecast for the construction industry over the five years should be viewed in the context of the economy as a whole, which is not expected to see a return to its long term average growth level until 2016, at the earliest.”

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