Russia's invasion of Ukraine has dramatically altered the outlook for the global economy. After glimmers of hope that the worst of the supply chain disruptions were easing and that the world was moving towards the final phases of the global pandemic and some longed-for normality, we face another broad-based supply shock that will mean inflation remaining higher for a longer period than previously expected.
So far, the greatest impact to UK construction has come from higher oil and gas prices. High energy costs are feeding through to the production of energy-intensive construction products and materials, and we have already seen several surcharges and price increase notifications as a result. Although down from their recent peaks, energy prices have yet to settle and are in a state of flux. Many producers use forward energy contracts/price hedging so there is typically a lag between wholesale energy cost rises and the impact on the cost of manufacturing products and materials, so even if the situation improves and prices fall in the short-term, the input cost of manufacturing these energy-intensive products and factory gate prices may not.
Our Tender Price Inflation report looks at the movement of prices in tenders for construction contracts in the UK. The report examines a number of contributing factors and is further informed by our market survey responses and contractor consultations. This forward forecast illustrates our view of annual tender price inflation from January to December with a base date of 1st May 2022.