Faithful+Gould UK Tender Price Index (TPI) Forecast
The Faithful+Gould TPI forecasts follow the BCIS Industry standard forecasts, adjusted to reflect Faithful+Gould’s market intelligence, and are based upon a year on year percentage change.
The latest forecasts from the Office for National Statistics [ONS] show GDP growth at 2.8% for 2014, 0.2% increase from the previous estimate.
Annual CPI Inflation decreased to 0.0% in February 2015, the main contributing factors being downward pressures on oil and food [ONS].
Bank of England expected to maintain interest base rate at 0.5% until late-2015 at the earliest.
The BCIS has revised its TPI forecast since the previous quarter. The forecast for 2015 has been revised down from 6.3% to 4.4%.
Construction Products Association forecasts growth in construction output in 2015, although a skills shortage and lack of funding are key risks to future growth
Result of the UK General Election most uncertain in 40 years. Future for public and private investment uncertain, with adverse effect on construction activity a risk in long term.
Keep an eye out for our Q3 2015 report for reaction to the result of the general election and an update on its potential impact on the UK construction market
According to the ONS, construction output between the months of December 2014 and February 2015 showed a decrease of 3.2% on the three previous months (September to November 2014). This is confirmation that the first months of 2015 saw a cooling in activity, perhaps more significant than expected. The main reason for this was a 7.7% decrease in repair and maintenance activity in the period, whereas all new work only suffered a minor decrease of 0.3%.
Nonetheless, when comparing the same period to the previous year, results show that activity has marginally increased overall by 0.3%, with all new work again showing healthy signs of growth in comparison to repair and maintenance. Given the particularly high rate of growth which emanated from Q1 2014 data, the figures from the same period this year show that a sustained recovery is well underway.
Forecasts provide a largely positive outlook for 2015. Experian economics statistics for February, compiled at the end of March 2015, show that overall growth is likely to be sustained. The construction activity index, based on a survey of 800 firms, stood at 60 in February [50+ indicating expansion], while the new orders and tender enquiries indices also stood at 66 and 64 respectively.
The Construction Products Association forecasts that output will continue to increase by 5.5% in 2015, although the tone adopted is cautionary: while short term growth is due to be sustained by the private housing, infrastructure and commercial sectors, the future for public and private investment remains in doubt due to the uncertainty over the imminent UK General Election.
Concerns over a regional imbalance in construction activity have been quelled by increasingly robust data provided in particular by the West Midlands, the North East, Wales and Scotland. Where data has previously shown London as the main driver of the recovery, short term investor confidence has burgeoned further afield. According to data provided by Glenigan, the value of underlying project starts in the West Midlands is expected to increase by 26% in 2015, while Scotland’s figures are almost as positive at 21%.
In line with this forecast, the overall value of infrastructure contract awards in the UK increased by 90.4% year-on-year in March, thanks in large part to new utilities and civil engineering project awards in the devolved nations. A notable contributor is Wales, where the award of the M4 corridor project around Newport has contributed to a 26.6% year-on-year increase to infrastructure award values in this region and a 13% share of overall contract awards. However, London narrowly maintains its position at the top of this league, accounting for 19% of all awards in March. Awards in the commercial property sector have sustained London’s impetus, notable projects including the Saatchi office development.
Although activity in regional areas of the UK has blossomed, ongoing long term growth remains at risk as a result of the lack of commitment to funding shown by both existing and future governments. Visions that symbolise the much needed re-balancing of the national economy, such as the Conservatives’ flagship Northern Hub, will require strong backing financially from the new British Government in order to maintain a sustained and consistent period of growth outside greater London. In addition, significant urban regeneration projects to key business districts such as central Birmingham will require ongoing investment and financial commitment so as to complement London’s relentless proliferation
How might the result of the general election affect growth of the UK construction market and what are the key risks?
High risk of weak government or hung parliament which will lack authority to make quick decisions
Latest RICS UK Construction market survey indicates skills shortages and financial constraints are currently the most significant factors limiting building activity
A weak government will undermine commitment to long term public and private funding, constraining financial backing for key projects
It will also lack commitment to policies addressing labour and skills shortages
With a gradual ease in demand envisaged over the next 12 months and uncertainty relating to the amount of public and private investment that will be made available after the General Election, Faithful+Gould forecasts a gradual decrease in the rate of tender price rises in 2016. This forecast remains unchanged since our previous Q1 2015 report.
N.B. No data provided by Mace for 2018