13 Jun 2017
BCIS’ latest forecast was published on the eve of the election on the assumption that, whatever the outcome, government policies for construction would remain largely unchanged.
The UK has its second hung Parliament in seven years, with no party commanding a majority in the Commons and the Conservatives proceeding as a minority administration.
There is no indication that this will change their stated policies to boost the supply of houses and to invest in strategic infrastructure projects. However the uncertainty brought about by the election is likely to affect investors’ confidence in the short term and make the government’s objectives for the Brexit negotiations unclear.
With almost any outcome still possible, BCIS produced forecasts based on three scenarios. These reflect the different political outcomes from the exit negotiations from the EU and are equally likely. They reflect the increased likelihood of restrictions on the movement of labour and pressures on Sterling that are likely to result from withdrawal from the Single Market and the Customs Union:
- an 'upside' scenario based on the assumption that we 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 we do not have 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 there are restrictions on the movement of labour.
The terms 'central', 'upside' and 'downside' reflect the impact of the scenarios on construction demand.
The consequential effects of the three scenarios for tender prices follow:
- tender prices will rise 3% in 2017 then rise steadily to 33% above current prices by 1st quarter 2022 (‘upside scenario’)
- tender prices will fall slightly in 2017, recover in 2018, then rise to 20% above current levels by 1st quarter 2022 (‘central forecast’); and
- tender prices to fall by 10% over the next two years, with a recovery to 8% above current levels by 1st quarter 2022 (‘downside scenario’).
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.
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