Q4 2020
Tender Price Indicator
With the initial shock of COVID-19 now over, there have been some promising signs that an economic recovery is on the horizon.
Re-opening construction sites has given the industry a substantial lift, allowing output and productivity levels to make a recovery. Although the pandemic continues to disrupt business and economic activity, construction has shown resilience in overcoming the initial disruption brought about by the pandemic.
While full recovery remains a distant prospect, many parts of the UK economy, construction included, have seen a notable V-shaped recovery in many respects. Government support measures have helped to boost confidence, deter job losses and bolster demand. Despite the lingering uncertainties over localised lockdown measures, the availability of a vaccine and indeed Brexit, we’ve seen evidence that investment plans are being reinstated and developers, although proceeding cautiously, are still actively progressing schemes.
The major cause for concern is the slowdown in new work coming forward. New orders are rising according to the monthly PMI data but enquiries and new tender opportunities are still very much below average. This will only act to place increased pressure on the supply chain to bid for work at any cost.
In the short-term, it’s likely that some of the strong upward momentum over the summer will ease back, but by the beginning of 2022 a number of economists expect that the UK will have returned to pre-COVID-19 levels of output and activity. Although business sentiment has vastly improved in recent months, the fragile path to recovery is unlikely to be straightforward.
Our Forecasts
Our weighted UK average TPI forecast still shows a 1% fall in 2020, but our outlook for 2021 has improved since our last TPI report, rising from -1.5% to -1%. The 2021 UK weighted average has been pushed up by stronger anticipated inflation in some of the Northern regions as well as in Wales, Scotland and Northern Ireland. COVID-19 appears to have accelerated the trend of ‘Northshoring’, with a number of businesses opting to move some of their operations out of London and into Northern cities that typically offer cheaper office space and lower labour costs.
Once we reach 2022, we expect that many of the negative effects of COVID-19 will have dissipated and we’ll begin to see tender price inflation increase. Accordingly, our UK average for 2022 has been raised from 0.5% to 1% and then from 1% to 1.5% in 2023 as we return closer to our long-term average.
We anticipate that some sectors will be more active than others over the next few years. Housing and public sector work are expected to be at the forefront of the recovery whilst the commercial sector is likely to scale back activity in the short-term whilst it assesses post-pandemic demand for office space. Aviation, leisure and hospitality are also likely to contract in the short-term. We expect that new build works will remain subdued but that there will be a stronger demand for layout alteration, re-purposing and refurbishment of existing stock, particularly in the commercial offices sector.
All forecasts take account of all sectors and project sizes as a statistical average, indicating an overall trend in pricing levels. It should be remembered that individual projects may experience tender pricing above or below the published average rate, reflecting the project specific components and conditions.
