Construction costs are forecast to rise just over 3% in the year to Q3 2024, while tender prices are expected to increase by just over 2% in the same period, according to the latest projections from the Building Cost Information Service (BCIS).
In its five-year forecast published for Q3 2023, the BCIS has reported that from Q3 2024, costs are set to rise between 2% and 3% per annum until 2028.
This is slightly less than tender prices, which are expected to increase between 3% and 4% per annum in the same the period.
With growth in the UK economy expected to be subdued for the next two years, BCIS is predicting construction output to fall this year and next, mainly because of decreases in housing and private commercial work, but to recover slowly from 2025.
Reflected strongly in the market conditions element of TPI is labour supply and costs. Construction site rates, in line with inflation, continue to rise faster than wage awards, becoming the main driver of the growth in overall costs. The BCIS General Building Cost Index (GBCI) is forecast to grow by 2.7% in the 12 months to Q3 2023.
Meanwhile, materials cost inflation continues to cool from the peaks seen in Q2 2022 with good availability for most construction products.
The BCIS Materials Cost Index is expected to remain at the same level in Q3 2023, compared to Q3 2022, and increase by 1.0% in the 12-month period to Q3 2024.
New work output is expected to contract in 2023-2024, before returning to growth thereafter, and rising 6% over the forecast period to 2028.
Recent changes to planning policies are reportedly adding pressure to and causing delays in the project pipeline.
Dr David Crosthwaite, chief economist for BCIS, said: “Against an economic backdrop where we can see the effects of monetary tightening feeding through, we expect the construction industry, as well as the wider economy, to remain resilient.
“However, there is real concern over the industry’s ability to supply sufficient skilled labour in the near and medium-term future. The effects of a shortfall have perhaps recently been tempered by a reduction in demand.
“As output increases, labour shortages could be exacerbated by issues like the RAAC crisis, with remedial work needed where the use of reinforced autoclaved aerated concrete in schools and hospitals, as well as other public buildings, has been identified. And, although materials cost inflation has been easing, prices remain elevated compared to pre-Covid levels.
