Civil engineering costs are expected to rise nearly 20% over the next five years, while tender prices rise 14% in the face of slowing output in the sector, according to the BCIS central forecast.
There is a consensus that the uncertainty created by the leave vote in the EU Referendum will lead to a slowdown. The length and depth of that slowdown will depend on various political decisions, any of which are equally possible. We have therefore produced forecasts based on three scenarios. These reflect the different political outcomes from the exit negotiations from the EU and are equally likely.
The scenarios result in different trends:
- Tender prices will rise by between 1% and 3% per annum over the next three years, increases strengthening thereafter with prices rising to 22% above current (2Q16) levels by 2021(‘upside scenario’).
- Tender price increases are set to slow down over the next four years, with stronger increases returning in 2020. Tender prices will be 14% above current levels by 2021 (‘central’ scenario).
- Tender prices will fall over the next three years, followed by a recovery to 2% above current pricing levels in 2021 (‘downside’ scenario).
The scenarios are based on the following underlying assumptions:
- An "upside" scenario based on the assumption that we will remain in the European free trade area with freedom of movement of labour.
- A "downside" scenario based on the assumption that we do not have favourable access to the European Union market and there are restrictions on the movement of labour.
- A "central" scenario based on some restrictions to trade but a largely unchanged access to labour.
The terms central, upside and downside reflect the impact of the scenarios on construction demand. We are publishing the central scenario as the forecast for the price and cost indices but it should be borne in mind that each forecast is equally possible.
It should be noted that these forecasts were prepared prior to the Chancellor’s November 2016 Autumn Statement.
Full details of the current civil engineering construction and general economic trends and the assumptions that underly the forecasts, together with forecasts of output, civil engineering construction costs and civil engineering tender prices for each scenario, are available to subscribers to the RICS Infrastructure Online Service in the Briefing section.