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Published: 21/03/2024
BCIS produces five-year construction industry forecasts, covering projected costs, tender prices and output, and examining the latest construction market trends.
The quarterly BCIS building briefing presents our view of housing, infrastructure, public non-housing, private industrial and private commercial new output against the backdrop of materials and labour costs, and the wider economic background.
The full briefings are available to subscribers of BCIS CapX.
BCIS construction industry forecast – 1Q2024 to 1Q2029
Building costs will increase by 15% over the next five years, while tender prices will rise by 17% over the same period, according to the latest forecast data from BCIS.
Although the industry has emerged from a period of rampant inflation, construction firms are now dealing with the challenges of falling demand and stagnating output.
Total new work output fell by 2.1% in 2023, compared with the previous year, and is expected to contract by a further 3.2% in 2024 before returning to growth. Over the forecast period (2024-2029), total new work output is forecast to grow by 21%.
Dr David Crosthwaite, Chief Economist at BCIS, said: ‘We’re seeing recessionary pressures feeding through to construction from the wider economy; the cost of borrowing impacts on new work, particularly in the private sector, because it’s a major barrier to investment in a stagnant economy. That’s why we expect private industrial, commercial and housing work to bear the brunt of the declines in output this year.
‘Added to that, new orders data, which is an indicator of upcoming projects and the volume of work available in the market, is trending down. The unfavourable investment climate combined with the uncertainty of an election year continues to have a negative impact on growth.
‘Despite recently having had the Spring Budget and publication of the updated National Infrastructure and Construction Pipeline, the government’s plans for construction remain unclear.’
Annual growth in tender prices has continued to ease, falling from 8.6% in 1Q2023 to 2.9% in 1Q2024. BCIS expects annual growth in tender prices to continue to fall, reaching 1.6% by 4Q2024.
On the input costs side, annual growth in the BCIS Labour Cost Index is forecast to grow by 18% between 1Q2024 and 1Q2029. Site rates have been rising in line with inflation and the pace of annual growth in labour costs is expected to slow down.
The BCIS Materials Cost Index has shown negative annual growth for the past two quarters and is forecast to drop further by 0.8% in 1Q2024. Over the next five years, BCIS forecasts it to grow by 13%.
Summary of forecasts
Source: BCIS, ONS
* BCIS forecast of new work output at constant 2019 prices
Dr Crosthwaite said: ‘Although firms are generally reporting stable materials prices, everyone is watching what happens in the Red Sea and the Middle East. Even where there’s not a direct inflationary effect on prices because of the delays or hikes in shipping costs, we’re hearing that the increased risk is being factored into prices.
‘We know that contractors are still being cautious about selecting projects to bid on and that there has been difficulty in finding contractors to bid on large, complex projects.
‘After lurching from what seems like one crisis to the next, the industry is still dealing with a lot of uncertainty. Even if the UK economy comes out of recession straight away, this persistent low growth seems to have become characteristic, and it’s the same in construction.
‘The Bank of England’s Monetary Policy Committee has voted again to maintain the base rate at 5.25%. A decrease could help get construction and the wider economy growing. If they wait until the summer to decrease it to 5%, it may be too little too late.’
The full forecast of prices, costs and demand, covering 2024 to 2029, is available to subscribers of BCIS CapX.
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Quarterly updates to forecasts are published for building, infrastructure, and maintenance, cleaning and energy, while an annual update is published for the economic significance of maintenance.
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