Contractor Mace has warned that tender prices in the UK are set to continue to rise due to stubbornly high inflation.
The contractor’s market view report for the three months between March and June found that the rate of price rises in raw materials continued to slow, however wider inflation turbulence continues. Mace subsequently increased its 2023 tender price forecast from 2.5% to 3.0% in London and 3.5% elsewhere, with the forecasts for the following two years also nudged upward.
The shortage of workers has also seen wages rise, with regular pay in the construction industry reaccelerating, rising 1.8% in Q1 – up 6.2% compared to a year ago.
Andy Beard, global head of cost and commercial management at Mace, said: “Despite the news about inflation, we are in a much more hopeful position than we were a quarter ago. The economy has held up better than seemed likely at the start of the year, and prices have reacted accordingly.
“Notably, pay in construction is currently going from strength to strength, leaving us with little option but to increase tender prices for this year.
“Recent suggestions that interest rates could rise as high as 5.5% need careful watching. With the economy still incredibly fragile, such a shift could trigger a recession.”
In terms of tender prices the Mace report said it expected London to perform worse than other UK regions in the short term. Recent new orders figures show the capital struggling, and seeing large falls, in particular in infrastructure and housing. With much of the delays to HS2 centring around Euston, and potentially due to greater desire for houses than flats, there is a strong likelihood of greater tender price rises in the rest of the country.
Output did rise in the first quarter of 2023, which was largely due to increases in workloads in the repair and maintenance sector, with all new work declining by 1.9%. Infrastructure output also shrank by 1.9% with Mace stating that the sub-sector was unable to recover from January’s poor weather, while developments such as the decision to rephase elements of HS2 have also hit activity.