January 27, 2023

While falling inflation is generally something to be welcomed, it will be driven by a fall in construction pressures.

The UK construction market has reached a tipping point as recession sets in, according to analysis by Arcadis in its Market view winter 2022 report.

Arcadis forecasts divergence in inflationary pressures for buildings and national infrastructure projects as high private sector borrowing costs bite

Arcadis’ 2023 tender price forecast confirms that inflation is likely to have peaked and will decline to just 2% for buildings, down from 10% in 2022. However, a slower decline is predicted for infrastructure with an inflation forecast for 2023 of 6-7%.

The report says all signs point to the slowdown. This evidence includes a 33% decline in the RIBA Future Trends Workload Index for Architects over the past six months to

a balance of -20 in October.

Related information

The Construction Products Association (CPA) forecasts that new construction production will decline 3.7% in 2023 and recover by 1.5% in 2024.

Simon Rawlinson, head of strategic research and insight at Arcadis, said: “With the chancellor shielding the public sector capital program from market effects in the near term, our forecast is subject to even more uncertainty than usual. Many industries, including infrastructure, industrial, and even non-housing repair and maintenance, are entering the recession from record pressures, and not all industries may fall into recession.

“We expect input costs to increase further in 2023, but not all of these will be passed on to customers. Competitive pressure in finance-driven sectors such as residential and commercial real estate will result in low bid price inflation.”

Ross Baylis, head of cost and commercial management, said: “Compared to the previous recession in 2007 and 2008, construction markets today are increasingly diverse, meaning that commercial pressures are exerted in very different ways. Regardless of the model chosen, from JVs to vertical integration, inflation must always be accommodated somewhere along the chain, from self-employment to the customer in a JV. As markets tighten in 2023 and beyond, the level of absorption will increase and with it commercial stress.

“With energy and labor costs likely to still be major cost drivers in 2023, such variation in practice and procurement means that clients and their advisors will need to think even more carefully about how their bidding strategy will distribute cost and price tensions around the world. project team.”

Do you have a story? Email to news@theconstructionindex.co.uk

Leave a Reply

Your email address will not be published. Required fields are marked *