TENDER PRICE FORECAST CONT’D
The Barbour ABI data has reported some positive growth for contract awards in January
2018 indicating an 11.6% increase compared with December 2017 in the value of
new contracts awarded, together with a 46.6% increase in the number of construction
projects compared with December 2017, albeit that both results were lower than that
reported for January 2017 (10.6% and 19.3% lower respectively). A further positive
indication, even if marginal, is that the latest IHS Markit/CIPS PMI (Construction
Industry Purchasing Managers’ Index Survey) for February 2018 at 51.4 remains above
the crucial ‘no-change’ threshold reading of 50 (indicating contraction) for the fifth
month in succession.
Recent increases in the cost of materials, particularly on imported goods, and wages
are continuing to exert pressures on main contractors and their supply chains. The
indications are that these increases may soon start to outweigh concerns over securing
workload during a slowdown in demand, particularly if companies, following the lessons
learnt from the failure of Carillion, look to improve their corporate governance and focus
more on profit margins rather than the pursuit of turnover as has been reported.
Given the complexities prevalent in the current market place, together with the
continuing uncertainty over Brexit and how this will impact on the industry and wider
economy, forecasting remains somewhat indefinite and there is the potential for marked
variations to exist between different projects and particular regions, however, our
projections are for tender prices to rise between 1.50% and 2% in 2018, 2.50% and
3% in 2019 before increasing more noticeably by 3% to 3.5% in 2020 and 3.5% to 4%
in 2021 when greater certainty and clarity on the exact terms of Brexit and its impact
should be known. At this stage, however, there is little or no evidence to persuade us
to change our statement in the previous Briefing that to forecast possible tender price
inflation beyond Brexit would be no more than pure speculation.
Kevin Heaton - Director
E:
T: 0117 929 2641
Sources
Office for National Statistics (ONS): Construction Output in Great Britain: December 2017 (date 9 February 2018)
National Institute of Economic and Social Research (NIESR): Monthly Estimates of GDP (date 9 February 2018)
Barbour ABI: Economic and Construction Market Review February 2018
Building Cost Information Services (BCIS) Quarterly Briefing: December 2017 and update on Quarterly Briefing January
2018
HM Treasury Forecasts for the UK economy: a comparison of independent forecasts no. 369 (dated February 2018)
OECD Economic Outlook Volume 2017 Issue 2
IHS Markit/CIPS UK Construction PMI (date 2 March 2018)
Note: Forecasts of tender price inflation are indicative only and actual inflation will be dependant on the particular
circumstances of each individual project including size, procurement route, programme, risk transfer and the
prevailing market conditions in each location.
For further information on forecasts of tender price inflation in your particular region please contact your local MDA
Consulting Ltd office.
