Tender price indicator
Q2 2019

Our Tender Price Inflation report looks at the movement of prices in tenders for building contracts in the UK. The report examines a number of contributing factors and is further informed by our market survey responses and contractor consultations.

UK construction output grew by 1.7% in the year to May 2019 according to the ONS, but growth has been relatively flat in the first five months of 2019. As anticipated in our previous TPI report, output growth is likely to remain muted this year, with both infrastructure and new private industrial sectors likely to see the strongest average annual growth

IHS Markit/CIPS data for May and June shows that construction activity experienced two successive months of contraction. June’s reading – the steepest contraction in the sector since April 2009 – saw substantial falls in housebuilding, commercial and civil engineering. New work orders also decreased and demand for construction products and materials fell at the sharpest pace since January 2010.

Brexit uncertainty continues to hit confidence, leading to further delayed projects. The PMI‘s measure of business optimism was at a seven-month low in June with respondents becoming more risk averse as they struggle to predict the outcome of Brexit and the future impact on the economy. Many were hoping to be enjoying a post-Brexit bounce by now but any prospect of that has been pushed back towards the end of the year. If an orderly Brexit is achieved by 31st of October, it’s unlikely that the current slump will evolve into a prolonged downward trend.

Rising input costs are not fully feeding through to tender prices as a result of the current competitive market conditions. Lower margins are being accepted in order to maintain a solid workload and market share whilst the current political frictions are resolved.