Tender prices show signs of bottoming out

Published:  18 June, 2013

Tender prices rose by 6.4 percent in Q4 2012, compared with the previous quarter, and by 4.0 percent compared with the same quarter in 2011, according to the latest figures from the UK construction Tender Price Index compiled by RICS' Building Cost Information Service (BCIS).

This significant rise in tender prices is currently thought to be a blip, but the fluctuation in the BCIS All-in Tender Price Index over the preceding quarters is indicative of a bottoming out. The market would seem to be caught between rising input cost pressures, both current and future, and the downward pull of construction workload.

The total volume of construction orders increased by 3 percent in Q4 2012 compared with the previous quarter and by 11 percent compared with the same quarter in 2011. All sectors saw an increase in orders of between 9 and 10 percent, apart from the infrastructure sector where orders fell by 15 percent in Q4 2012 compared with the previous quarter.

New orders increased significantly compared to the same quarter the previous year. Double digit increases were recorded across all sectors, again with the exception of the infrastructure sector where new orders fell by 13 percent. However, overall, total construction orders remained unchanged in 2012 compared with 2011.

Total construction work output for Q4 2012 rose by 1 percent compared to Q3 2012, but fell by 9 percent compared with a year earlier. Additionally, new work output rose by 2 percent in Q4 2012 compared with the previous quarter, but fell by 11 percent compared to a year earlier. All new work sectors experienced a fall in output over the year to fourth quarter 2012, with the exception of the private industrial sector where output increased by 6 percent. Double digit falls occurred in the public housing, public non-housing and private commercial sectors with falls of 14 percent, 19 percent and 15 percent respectively. Total construction output fell by 8 percent in 2012 compared with 2011, while new work output fell by 11 percent.

Building costs remained unchanged in Q4 2012 compared with Q3 2012, but rose marginally by 0.3 percent compared to a year earlier. Materials prices also remained unchanged in Q4 2012 compared with both the previous quarter and a year earlier. For the construction sector as a whole, average weekly earnings (AWE) remained unchanged in Q4 2012 compared to a year earlier; this compared unfavourably with AWE across the economy as a whole which saw a 1.4 percent growth.

Peter Rumble, BCIS information services manager, said: "While it looks as though tender prices are bottoming out, the construction industry still has a long way to go before we reach pre-recession levels.

"With new work output expected to fall again in 2013, we are predicting a rise in tender prices a little ahead of input cost rises over the next year. As demand begins to pick up again in 2014, tender prices will still remain a little ahead of cost rises and gradually move further ahead towards the end of the forecast period in 2017, as demand strengthens.”

Mr Rumble added: "A modest recovery of 2 percent in new work output is predicted for 2014 as the economy as a whole starts to grow stronger and both consumer and business confidence grows. Government initiatives to boost house building including 'First Buy', 'New Buy' and 'Help to Buy' should slowly start to drag private sector housing out of recession in 2013. In addition, the infrastructure sector is anticipated to have reasonably strong growth over the forecast period, driven in particular by a pipeline of projects in the rail and electricity sub-sectors."

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