RICS: Tender Prices start to fall (UK)

Construction contractors are not passing on the full impact of the rising costs of materials and wages, amid fears of a credit crunch backlash from clients unable to secure finance for new orders, according to the latest Tender Price Index compiled by RICS' Building Cost Information Service (BCIS).

The price of new construction work in Q1 2008 fell by 2.4% compared with the previous quarter whilst costs rose by 1.1% in the same period.

Overall workload demand for the year to Q1 remained on trend, despite drops in public (-6%) and private (-10%) housing workloads, on the back of an increase in the amount of infrastructure, public non housing and commercial work being undertaken. However a fall in new work output is expected for 2008, with output remaining unchanged in 2009, but increasing at around its long term trend rate in 2010.

The increasing pressure of rising input costs however should see tender prices improve throughout 2008 providing demand remains reasonably stable.

Peter Rumble, BCIS Information Services Manager comments: "Contractors appear to be a little nervous about future workloads currently, and with new work output expected to fall slightly this year, input cost rises are likely to be the key driver of tender price rises. Input cost rises are currently quite strong, and are expected to remain so over the coming year. The credit crunch and the slowdown in economic growth are expected to have a greater effect on construction output than first thought. However, it is anticipated that the public non housing and infrastructure sectors will both grow over the next three years, with particularly strong growth in 2008 and 2009."

Source: RICS

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