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Tender prices to rise by up to 6% a year

11 Aug 15 Latest forecasts from the Royal Institution of Chartered Surveyors (RICS) predict that by 2020 tender prices will be 33% higher than their pre-recession peak.

Tender prices rose by 0.8% in first quarter of 2015 compared with the previous quarter, and by 4.5% compared with the same quarter in 2014, according to the latest report from RICS’ Building Cost Information Service (BCIS).  

The BCIS report predicts that annual tender price increases will moderate in 2015, as contractors start to cope with increasing workloads.

Materials prices fell by 0.4% in the first quarter of 2015 compared with the previous quarter, but remained unchanged compared with first quarter of 2014. Little movement is expected in materials prices in the remainder of 2015, with domestic and Eurozone inflation very low. However, it is anticipated that prices will start to rise again in 2016, with an increase in the year to Q2 2016 of 2.3% – the increase being exaggerated by a fall in prices. Over the following years, as both the construction and wider economies improve, upward pressure is likely to increase materials prices from 2.6% in the year to the 2nd quarter of 2017, to 4.1% in the year to the 2nd quarter of 2019, the report says.

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With wages costs also increasing by 3% to 4% a year over the next five years, total input costs are set to rise by a similar amount.

It is anticipated that strong growth in new work output will continue this year and next, with increases of 5% predicted in both years. Total new work output will pass the pre-recession peak of 2007 during 2016, and will be 15% higher than the 2007 peak by 2019. Over the five year forecast period, BCIS estimates that new work output will have grown by around 20% since 2014 – this largely due to continued demand in the private housing sector, private industrial sector and private commercial sectors. However, growth is expected to moderate in 2017, to 3%, rising faster at a rate of 4% in 2018 and 2019.

BCIS head of forecasting Peter Rumble said: “The UK construction industry is showing strong signs of growth, this reflected in the BCIS forecast which shows strong increases in new work output. As a result, over the first year of the forecast period, tender prices are expected to rise by 4%, with relatively moderate increases in input costs. Moving forward, with workloads continuing to grow, and with rising pressure from input cost increases, tender prices are expected to rise between an annual 4.5% and 6% over the remainder of the forecast period.”

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