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22 JUL 2019

BCIS forecasts for the FM sector: July 2019

The BCIS five-year (1Q2019 to 1Q2024) forecasts for the FM sector expect:

  • maintenance costs to rise by 24%
  • cleaning costs to rise by 30% and
  • energy costs to rise by 4% (based on annual averages 2018 to 2023)*.

Maintenance costs

Maintenance costs, as measured by the BCIS All-in Maintenance Cost Index, rose by 4.2% in the year to 1st quarter 2019. The annual rate of growth in costs is expected to rise to 5.7% to 1st quarter 2020, but then fall again to between 4–5% per annum for the rest of the forecast period.

Repair and maintenance (R&M) output is forecast to rise by less than 0.5% in 2019 and by 1.7% in 2020, then grow by between 2 and 2.5% per annum between 2021 and 2023.

Maintenance prices are forecast to rise by between 1 and 2% during 2019, followed by an annual increase of 4.4% by 1st quarter 2021. With output increasing in 2021 and 2022, it is anticipated that maintenance prices will rise by 5% in the year to 1st quarter 2022. Over the final three years of the forecast period, with sharper growth in total output and increasing pressure from input costs, prices are forecast to rise by almost 6% per annum in the years to 1st quarters 2023 and 2024.

Cleaning costs

Cleaning costs rose by 5.2% in the year to 1st quarter 2019, mainly due to the National Living Wage (NLW). Costs are forecast to continue to rise by close to 5% per annum over the forecast period as the NLW is increased to a target of £9.00 per hour by 2020.
With the sharp fall in Sterling following the EU Referendum, upward pressure will have been put on oil and consequently energy prices in the UK. Sterling initially fell by 18% against the US Dollar but has since recovered to a fall of 13%. The Brexit negotiations continue to make the exchange rates of Sterling against the US Dollar and the Euro quite volatile.

Energy prices

Energy prices are largely driven by the global market and taxes, and as such are not likely to be affected by the UK leaving the EU. However, a fall in Sterling will raise the price of imported fuel and energy. The central scenario assumes that Sterling exchange rates will stay depressed until the end of the transitional period, moving back to pre-EU Referendum levels thereafter, resulting in some reduction in the prices of imported materials.

Energy prices are expected to fall by over 4% in 2019, rise by 1.4% in 2020 and 2021, then rise by 2.7% in 2022 and 1.3% in 2023.

There is still a great deal of uncertainty over the terms that will be agreed when the UK leaves the EU. It is looking increasingly likely that the earliest the UK will leave the EU will be later in the year. While almost any outcome is still possible, BCIS will continue to produce forecasts based on three scenarios. These reflect the different outcomes from the exit negotiations from the EU and are equally likely. The uncertainty of the results of the negotiations will undoubtedly lead to BCIS revising its assumptions again as more is known. More details of the three scenarios can be found in the BCIS Quarterly briefing, June 2019.

*Energy cost projections are based on annual averages. As the price of oil is key to the majority of energy costs, these projections are based on the 2018 Fossil Fuel Price Assumptions published annually by the Department for Business, Energy and Industrial Strategy (BEIS).