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Tender prices may have bottomed out

18 Jun 13 Quantity surveyors believe a recent rise in tender prices is “just a blip” but say that there are signs that the falling trend may really be coming to an end.

Tender prices rose by 6.4% in Q4 2012, compared with the previous quarter, and by 4.0% compared with the same quarter in 2011, according to the latest figures from the UK construction tender price index compiled by Royal Institution of Chartered Surveyors’ Building Cost Information Service (BCIS).

Although this significant rise in tender prices is considered to be a blip, but the fluctuation in the all-in tender price index over the preceding quarters is indicative of a bottoming out, the BCIS said. The market would seem to be caught between rising input cost pressures, both current and future, and the downward pull of construction workload, it added.

The total volume of construction orders increased by 35% in Q4 2012 compared with the previous quarter and by 11% compared with the same quarter in 2011. All sectors saw an increase in orders of between 9% and 10%, apart from the infrastructure sector where orders fell by 15% in Q4 2012 compared with the previous quarter.

New orders increased significantly in Q4 2012 compared to the same quarter the previous year. Double digit increases were recorded across all sectors, again with the exception of the infrastructure sector where new orders fell by 13%. However, overall, total construction orders remained unchanged in 2012 compared with 2011.

Total construction work output for Q4 2012 rose by 1% compared to Q3 2012, but fell by 9% compared with a year earlier. Additionally new work output rose by 2% in Q4 2012 compared with the previous quarter, but fell by 11% compared to a year earlier. All new work sectors experienced a fall in output over the year to 4th quarter 2012, with the exception of the private industrial sector where output increased by 6%.  There were double-digit falls in public housing (14%), public non-housing (19%) and private commercial sectors (15%).

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Total construction output fell by 8% in 2012 compared with 2011, while new work output fell by 11%.

However, building costs remained unchanged in Q4 2012 compared with Q3 2012, and rose marginally by 0.3% compared to a year earlier.  Materials prices also remained unchanged in Q4 2012 compared with both the previous quarter and a year earlier. For the construction sector as a whole, average weekly earnings (AWE) remained unchanged in Q4 2012 compared to a year earlier, this compared unfavourably with AWE across the economy as a whole which saw a 1.4% growth.

BCIS information services manager Peter Rumble said: “Whilst it looks as though tender prices are bottoming out, the construction industry still has a long way to go before we reach pre-recession levels.

“With new work output expected to fall again in 2013, we are predicting a rise in tender prices a little ahead of input cost rises over the next year. As demand begins to pick up again in 2014 tender prices will still remain a little ahead of cost rises and gradually move further ahead towards the end of the forecast period in 2017, as demand strengthens.”

Mr Rumble added: “A modest recovery of 2% in new work output is predicted for 2014 as the economy as a whole starts to grow stronger and both consumer and business confidence grows. Government initiatives to boost house building including ‘FirstBuy’, ‘New Buy’ and ‘Help to Buy’ should slowly start to drag private sector housing out of recession in 2013.  In addition, the infrastructure sector is anticipated to have reasonably strong growth over the forecast period driven in particular by a pipeline of projects in the rail and electricity sub-sectors.”

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