Mace has announced unchanged tender-price forecasts for 2023 in its latest analysis, saying that positive and negative influences are “balancing costs” for the construction industry.
In its Market View Report for the third quarter of 2023, the consultancy and construction firm maintained the 2023 forecasts from its previous report, expecting tender-price inflation of 3.0 per cent in London and 3.5 per cent for the rest of the UK.
GDP rose by 0.2 per cent in the second quarter of 2023, says the report, with construction output increasing by 0.3 per cent.
It adds that while pay is now growing faster than inflation, real incomes are lower than they were at the end of last year. And “pressures on spending remain problematic”, with interest rates continuing to rise and increasing numbers of households remortgaging at higher rates.
The report says that materials prices are 2 per cent lower than a year ago. But it adds they have risen since the start of this year, and in general “prices are proving sticky in coming down”.
Labour costs have eased only slightly over the past three months, says the document. The rate of annual wage growth fell to 5.8 per cent in June compared with 6.5 per cent in March. But wages were still 1.4 per cent higher in the year’s second quarter compared with the first.
In Q2 this year new orders were down 7 per cent compared with Q1, and 18 per cent down from a year ago. The report says that the last quarter was the worst for new orders, excluding the pandemic, since 2012.
The largest reductions were seen in the public non-housing and infrastructure sectors – with the latter’s drop coming from publicly funded projects, particularly roads.
This has heightened the “perception that the government is putting the brakes on spending”, says the report.
Mace says the worrying trend in new orders has created “renewed doubts about how the industry will fare in 2024” and its forecasts for next year may have to be revised downwards if the trend continues.
It is currently expecting reduced tender-price inflation next year of 2.0 per cent in London and 2.5 per cent across the rest of the UK.
The report is critical of the government’s lack of certainty on policies such as net-zero targets and the HS2 scheme. On the latter’s apparent scaling back, it says “potentially more harmful than the effect of reducing pipelines is the uncertainty and lack of faith the decision causes”.
Andy Beard, Mace’s global head of cost and commercial management, said: “The economy continued to struggle over the past quarter, and is likely to persist into 2024. Against this backdrop, the Bank of England has tightened monetary policy further and this is causing significant challenges for construction’s largest sector, housing.
“Inflation may be easing but it is still far too high, and despite construction material prices now falling, the pressure caused from historical increases is still a major issue.
“Given the fiscal squeeze caused by higher interest rates and inflation, it was always likely that public spending would come under pressure. If Q3 sees another very low set of new-orders data, we may need to lower our tender-price forecasts. An impending general election only adds to market unpredictability.”