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News & opinion

18 MAY 2018

Sterling exchange rates and construction

The value of Sterling against other currencies affects construction costs in a variety of ways.

Materials costs are affected by falls in Sterling:

  • it makes imported construction materials and components more expensive. The Office for National Statistics (ONS) estimate that the value of imported construction materials represents 10% of construction output
  • raw materials and fuel imported for the manufacture of construction materials and components will put cost pressure on the manufacturers
  • companies who report in other currencies will see the value of their UK sales reduced, which may increase the pressure to push up their Sterling price.

There are several factors that may offset these effects:

  • buyers may switch to UK manufacturers
  • overseas suppliers and importers may absorb some of the increases to maintain market share
  • stocks held in the UK supply chain will not be affected.

The exchange rates may also have an effect on labour costs, as working in the UK becomes less attractive to overseas workers who send some of their earnings to their home countries. This may restrict the supply if there is work in other non-Sterling countries.

The result of the Brexit referendum in June 2016 caused a fall in exchange rates of 11% to the Euro and the 13% to the US dollar. Sterling recovered slightly before falling again to a new low compared to the pre-referendum levels in October 2016 when it was 15% down against the Euro and 18% against the US Dollar.

Since then the pound has tended to recover against the dollar and is currently (11 May 2018) 8% down against the pre-referendum level. Against the Euro it has struggled, reaching a new low in August 2016 – 17% down compared with June 2016 and now standing 13% below the pre-referendum level.

Note

  • Rates quoted are Bank of England daily spot rates against Sterling.
  • This item is based on the analysis in the BCIS forecasts published in the BCIS Online Service, the RICS Infrastructure Information Service and BCIS Building Running Costs Online.