08 Sep 2017
Civil engineering costs rose 4% in the year to 1st quarter 2017 and are forecast to rise by around 3% in the year to 1st quarter 2018 and 1st quarter 2019; by 4% in the year to 1st quarter 2020, and by 5% per annum over the last two years of the forecast.
Cost increases will be driven by materials prices, particularly oil, and increases in wage awards driven by labour shortages in the latter half of the forecast period due to the restrictions in the movement of labour on EU exit, and historically high new infrastructure output.
New infrastructure output is expected to rise over each year of the forecast, following a sizeable decline in 2016. Over the first three years, output is predicted to rise between 2% and 4%, with this slower growth mainly due to the cycle of large projects winding down before being replaced by new ones. It is anticipated that output will rise more sharply in 2020 and 2021, with projects in the electricity, rail and roads sub-sectors being the key drivers of growth.
Infrastructure repair and maintenance
Growth in output in the infrastructure repair and maintenance sector is expected over the whole of the forecast period, with significant repairs to flood defences required in the short to medium term.
The growth in demand should see tender prices in the sector rise faster than costs over the forecast period, by 3.1% over the first year, 3.8% in the year to 1st quarter 2019, then more sharply over the remainder of the forecast, rising by 5%–7% per annum.
BCIS is continuing to assume that there will be restrictions on labour movement following exit from the EU and that this will impinge on the construction industry at the end of the two-year period following the signing of Article 50, as European labour moves out of the UK.
There is still a great deal of uncertainty over the terms that will be agreed when the UK leaves the European Union and almost any outcome is still possible. BCIS has therefore produced forecasts based on three scenarios:
- an 'upside' scenario based on the assumption that the UK will remain in the European free trade area, but there are restrictions on the movement of labour
- a 'downside' scenario based on the assumption that there is no favourable access to the European Union market and there are restrictions on the movement of labour; and
- a 'central' scenario based on some restrictions to trade and restrictions on the movement of labour.
The terms 'central', 'upside' and 'downside' reflect the impact of the scenarios on construction demand, rather than the outcome for construction tender prices.
BCIS is publishing the 'central' scenario as the forecast for the BCIS price and cost indices but it should be borne in mind that each forecast is equally possible.
The forecasts for the Infrastructure sector are published in the RICS Infrastructure Information Service.
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