UK construction market growing steadily

Tender prices and output rise, with strong forecasts for 2016

According to the latest RICS’ Building Cost Information Service (BCIS) report, tender prices rose by 1.1% in the second quarter of 2015 compared with the previous quarter, and by 4.7% compared with the same quarter in 2014.

Predictions for the next quarter show a continued rise in annual tender prices, although at a slower rate than the last four quarters.

The report also shows that prices for materials continued to fall, with a third consecutive quarterly drop. Prices fell by 0.4% in the second quarter of 2015 compared with the previous quarter, and by 0.8% compared with the same quarter a year earlier.

With prices of European Brent crude oil having fallen by 44% annually –projects in the civil engineering sector have been affected more than in the building construction sector due to all oil related products forming a much greater proportion of civil engineering costs than building costs.

The report does show however, that the overall price for materials will rise sharply in the year to third quarter of 2016, increasing by 4.6%, driven by rising metal prices and oil derivative prices. Over the remainder of the five year forecast, materials prices will rise at a steady rate of 4% per year.

Wage costs are also increasing by an annual 3% to 4% over the next five years, total input costs are set to rise by a similar amount.

Strong growth in new work output will continue in 2015, although this may slow to between 3-4% over the next four years before returning to stronger growth in 2020 (5%).

Peter Rumble, Head of Forecasting, BCIS, commented: “The UK construction industry continues to show signs of growth, this reflected in the BCIS forecast which shows strong increases in new work output. While this growth will slow a little over the next four years, it will still maintain momentum with resurgence to a high 5% growth rate in 2020. As a result, tender prices are forecast to rise by 5.5% in the year to third quarter 2016. Moving forward, as workloads continue to increase, tender prices are expected to rise between 5% and 6% per year over the remainder of the forecast period.”

The full report, ‘BCIS Quarterly Construction Briefing November 2015’, is available online as part of a subscription to the BCIS Online, a service run by BCIS.

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