Tender price indicator
Our first post Brexit forecast indicates that the current growth cycle is slowing due to economic uncertainty which could impact future demand for construction. Although Brexit has not had a major effect on the UK economy so far, the long term outlook is uncertain at present.
Forecasts for 2016 and early 2017 show continued price rises as pent up demand is released into a supply constrained market, with 2016 UK average rates of tender prices remaining positive at 4%.
We may see a slowing of new orders into the third and fourth quarters of 2017 if uncertainty works its way through to procurement. Our forecasts for 2017 has dropped to 2½% and to 2% for 2018, year on year UK average.
All regions have been impacted to some degree by Brexit. London tender pricing growth is down to 2% in 2017 and 1% for both 2018 and 2019 however there were already signs of a cooling market in some sectors. The North West is seeing strong growth through a committed pipeline of continued development which is bucking the trend with ½% increases on our previous forecast through to 2018.
Construction input costs continue to rise with most indicators recording 1½ to 2% average increases in materials costs year on year. Since June the Pound has weakened against the Euro by some 10%, from a high of £1.30/ euro. This translates to a 2 to 3% increase in overall building costs for a typical project, where 60% of materials are imported from the Eurozone. We are seeing this cost being passed on to projects where exchange rates and prices have not been fixed.
The Consumer Price Index (CPI) measure of inflation went up to 0.60% in the year to August, unchanged from July in line with forecasts.