Low on fuel…
Arcadis predicts tender price inflation of 10% for building work and 12% for infrastructure in 2022. This is precisely double what it was saying six months ago. Even as recently as June it was forecasting ‘only’ 10% inflation for infrastructure work.
Arcadis has also revisited its forecasts for 2023. For the building sector, the forecast for 2023 is unchanged from three months ago at 2-3% but infrastructure has been increased from 4% to 5%, in recognition of high background demand and potentially greater exposure to material cost inflation
The analysis is taken from Arcadis’ Autumn 2022 Market View, subtitled Energy Sapping. The quarterly analysis of the UK construction market looks across sectors and regions to deliver a tender price forecast to inform clients about what is going on in UK construction, helping financial decision making for projects and programmes.
Arcadis warns that the current market cycle has now reached its peak and the first signs of a slowdown are appearing as wider economic gloom and unprecedented energy price rises make their impact felt.
So far this year, amid a background of inflationary pressures and dire economic forecasts from the Bank of England, the construction industry has maintained positive results as the strong rebound from the disruption of the Covid-19 pandemic has continued. Output statistics showed construction volumes hit an historic high in May 2022 and Q2 was the busiest quarter ever recorded. Yet total construction orders fell by 10.45% in Q2 on the previous three months, the largest quarterly fall since Q4 2020.
The overall picture of inflationary pressure shows no signs of easing, Ardadis says, with material price increases continuing to be the main driver. While there is evidence of price stability emerging, this is threatened by spiralling energy costs which, even with government support to keep prices at current levels, are likely to impact the costs of basic material production and their availability. According to Arcadis, this means the high inflation of the first half of 2022 is likely to remain. The cost-of living crisis is also set to sustain upward pressure on labour costs which are likely to see catch-up pay demands in 2023 and beyond.
Arcadis says that there is hope that, with the slowdown starting from a highpoint, competitive pressure will take the edge off future price rises and this will be a shallow but prolonged dip rather than a blow-out. But with a high degree of uncertainty around energy costs and availability, there is still a risk the crisis could escalate further and the slowdown could develop into a hard landing.
Head of strategic research Simon Rawlinson said: “Whilst confidence in the construction market has remained more robust that the consumer market, it’s clear that the current cycle has peaked and we’re entering a period of slowdown. However, just how severe the slowdown will be, and whether it will bring down costs, remains uncertain. There are certainly signs that commodity prices are falling, but rising energy costs are baked-in, and their full impact yet to be felt. Therefore, we expect inflation to continue to be felt throughout the next 12-months and the effects of increased competition to eventually see inflation slow in 2024-25.”
Ross Baylis, head of cost and commercial management, said: “When the global financial crash of 2008-2012 ushered in the last protracted downturn, significant damage was done to collaboration in the industry as investment dried up and clients turned to single-stage tenders to increase competition. This came at the cost of team focus and integrated working practices which left a lasting impact of sub-optimal outcomes. It’s hoped these lessons can be learned this time and demand can hold up well enough to maintain good working practices across all sectors.”
Got a story? Email [email protected]
Information contained on this page is provided by an independent third-party content provider. This website makes no warranties or representations in connection therewith. If you are affiliated with this page and would like it removed please contact editor @saltlakecityutah.business
