The latest quarterly report from RICS’ Building Cost Information Service (BCIS) says that tender prices rose by 2.4% in fourth quarter of 2014 compared with the previous quarter, and by 7.1% compared with a year earlier.
Materials prices rose by 0.8% in the year to Q4 2014 and nationally agreed wage rates rose by 2.3%.
BCIS expects there to be little upward pressure on materials prices for the next year, with domestic consumer prices and general inflation very low, and very low or no inflation in the Eurozone. Subsequently, a strengthening construction economy and an improving wider economy will put upward pressure on materials prices, with an increase in the year to Q1 2017 of 2.6%, rising to 4.1% over the final year of the forecast period.
It is expected that stronger construction demand will strengthen the hand of trades unions in pay bargaining and so wages are forecast to rise by an average of 3.9% over the final two years of the forecast period.
New work output in the UK construction industry is forecast to grow by a fifth over the next five years. BCIS predicts it will increase by 6% in 2015, and 4% in 2016. Although growth is predicted to be slower in 2017 (3%), growth is expected to strengthen to around 4% in 2018 and 2019 – an increase of around 20% since 2014.
The main drivers of an increase in industry new work output are expected to be private housing and the private commercial sector.
BICS head of forecasting Peter Rumble said: “The last three quarters of 2014 saw higher annual tender price increases, in the order of 6% to 9%, as contractors were under pressure to cope with the sharp increase in workload. However, tender price increases are expected to slow to more moderate increases in 2015, as contractors start to cope with the increasing workload. Over the year to Q1 2016, tender prices are forecast to rise by 4.3%, with only modest increases in resource costs. As workload continues to grow over the remainder of the forecast period, and with increasing pressure from resource costs, it is anticipated that tender price increases will rise between 4.5% and 6% per annum. Over the next five years, tender prices are forecast to rise by about 28%.”