According to the BCIS Building Forecast, construction, along with the wider economy, is in for a bumpy ride over the next couple of years. A recession and double-digit inflation will affect both demand and costs.
However, construction demand is expected to continue to grow, and cost pressures will increasingly come from labour rather than materials.
The BCIS Tender Price Index in 2Q2022 rose by 3.4% compared with the previous quarter, and by 9.1% on an annual basis. Although the economic uncertainty will make contractors keen to tender, it also increases their risk of delivery. With labour site rates rising faster than wage awards and continued supply issues for some materials, tenders are likely to rise faster than basic costs over most of the forecast period.
BCIS forecast tender prices to rise by 20% in the five years to 2Q2027.
Construction materials prices rose by 8.0% in 2Q2022 compared with the previous quarter, and by 22.3% compared with a year earlier. Some materials prices are easing, and this will continue if supply chains receive no further shocks.
Wage awards over the next year will come under pressure from rising inflation. Some of the 2% and 3% increases already agreed for early 2023 may be renegotiated. The average wage awards over the forecast period will be around 3% per annum. With labour shortages expected for a while yet, site rates are expected to see higher increases. There are also reports of firms making discretionary cost of living payments. Both will affect the market conditions element of the tender prices.
The BCIS General Building Cost Index rose by 5.4% in 2Q2022 compared with 1Q2022, and by 14% compared with 2Q2021. Costs will rise by 16% over the forecast period (2Q2022 to 2Q2027).
The full forecast of prices, costs and demand is available in the Briefing section of the BCIS online service BCIS Online – Building Cost Information Service Online.