Construction Intelligence: Recovery and Growth

David Blackburn
Our United Kingdom experts present latest data and intelligence about local trends for the construction industry.

Faithful+Gould UK Tender Price Index (TPI) forecast


Forecast Date
2014201520162017
Faithful+Gould 1Q2014
5.00% 5.50% 5.75% 5.75%
BCIS 1Q2014
3.80% 4.00% 7.00% 7.30%

The Faithful+Gould Tender Price Inflation (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 Faithful+Gould forecast reflects market intelligence which is indicating a greater rise in 2014 and 2015, in comparison to the BCIS forecast, as demands on restricted capacity and greater workload opportunities impact on tender returns. It is anticipated this will level out for the periods from 2016 & 2017.

Highlights

  • The UK economy has shown firm evidence of recovery and growth with the BoE (Bank of England) forecasts recently adjusted upwards.

  • Construction activity, particularly in the South East, has seen TPI increase from 2Q2013.

  • The supply chain cost base, having hit the bottom late 2012/early 2013, has seen some significant movement across many trades over the last six months with contractors no longer offering procurement discounts.

  • Both main contractors and sub contractors are becoming selective in the procurement routes they are willing to engage upon with a noticeable reluctance to enter into single stage tendering.

Construction Activity & Inflation

Geographically, London still appears to be the most active part of the UK, though this will continue to impact on prices as contractors chase for the work that’s available.

The General Building Cost Index, the index that measures the cost of delivery rather than the TPI, forecasts a continual growth of costs following hitting the bottom of the market in 4Q2012 which is likely to impact on the TPI as the UK economy becomes stronger.

March 2014 Inflation Graph

The following trades are becoming increasingly more difficult to source and are seeing large increases in their cost base; formworkers, concrete placers, bricklayers, dryliners.

The volume of construction orders in the UK has risen by 18% compared with a year earlier. Increased orders in the commercial, industrial and housing sectors have been the main drivers of the increase.

Regional Variances

The London construction market continues to be operating as a micro economy to that of the rest of the UK resulting in greater TPI pressures due to main contractor and sub contractor capacity levels.

The regions beyond the M25 are seeing increases to the TPI however at a much reduced rate compared to the London economy, with the exception of localised pockets of high activity such as the Cambridge region.

Key Data

Annual % change
4Q11 to 4Q12
4Q12 to 4Q13
4Q13 to 4Q14
4Q14 to 4Q15
4Q15 to 4Q16
4Q16 to 4Q17
4Q17 to 4Q18
Building Costs
0.30% 1.30% 1.90% 2.80% 3.30% 3.50% 3.70%
Nationally Agreed Wage Awards
0.60% 1.60% 2.30% 2.90% 3.40% 3.90% 3.90%
Material Prices
0.00% 0.00%
1.50% 2.70% 3.00% 3.20%
3.80%
Retail Prices
3.20% 2.70% 2.60% 2.90% 3.20% 3.40% 3.30%
Construction New Work Output
-10.90% 2.40% 4.70% 5.80% 5.80% 6.30%
7.00%

Source for General Building Cost and Key Data: BCIS