Mace has announced unchanged tender price forecasts for 2023 in its latest analysis, saying the positive and negative influences are “equilibrium costs” for the construction industry.
On his Market View Report For the third quarter of 2023, the construction and consulting firm maintained its 2023 forecast from its previous report, expecting tender price inflation of 3.0% in London and 3.5% in the rest of United Kingdom.
GDP rose 0.2 percent in the second quarter of 2023, the report said, and construction output rose 0.3 percent.
He adds that while wages are now growing faster than inflation, real incomes are lower than they were at the end of last year. And “spending pressures remain problematic,” with interest rates continuing to rise and a growing number of households remortgaging at higher rates.
The report says material prices are 2 percent lower than a year ago. But he adds that they have risen since the beginning of the year and, in general, “prices are proving sticky on the downside.”
Labor costs have eased only slightly over the past three months, the paper said. The annual wage growth rate fell to 5.8% in June, down from 6.5% in March. But wages were still 1.4 percent higher in the second quarter of the year compared to the first.
In the second quarter of this year, new orders were down 7% compared to the first quarter and down 18% from a year ago. The report said the latest quarter was the worst for new orders, excluding the pandemic, since 2012.
The biggest reductions have been seen in the non-housing and infrastructure public sectors, with the fall in the latter coming from publicly funded projects, particularly roads.
This has increased the “perception that the government is putting the brakes on spending,” the report said.
Mace says the worrying trend in new orders has raised “renewed doubts about how the industry will fare in 2024” and its forecasts for next year may have to be revised downward if the trend continues.
Tender price inflation is currently expected to fall next year to 2.0% in London and 2.5% in the rest of the UK.
The report criticizes the government’s lack of certainty on policies such as net zero targets and the HS2 scheme. On the apparent reduction of the latter, he says that “potentially more damaging than the effect of reducing pipelines is the uncertainty and lack of faith that the decision causes.”
Andy Beard, Mace’s global head of commercial and cost management, said: “The economy continued to struggle in the last quarter and is likely to persist into 2024. Against this backdrop, the Bank of England has tightened further plus monetary policy and this is causing significant challenges for the largest construction sector, housing.
“Inflation may be easing, but it is still too high and, despite the fact that building material prices are falling, the pressure caused by historic increases remains a significant problem.
“Given the fiscal pressure from rising interest rates and inflation, it was always likely that government spending would be under pressure. If we see another very low set of new orders data in the third quarter, it is possible that we have to lower our bid price forecasts. A looming general election only adds to the unpredictability of the market.”
