Inflation forecasts

Contractor respondents to our Summer 2022 survey ranked materials and labour cost escalation as the biggest threat to the industry, with over half (54%) ranking this as the top threat, up from 46% in our Spring report.

The Russia-Ukraine war was identified as the second-largest threat, followed by materials and labour availability.

Significant cost escalation has been seen in response to the conflict. Later in the year there is suggestion that prices for some key materials may reduce slightly due to cooling demand. However, prices are expected to remain significantly elevated in comparison to pre-pandemic levels.

Eight out of ten contractor respondents said that some schemes are stalling due to the uncertainty facing the industry — up from 65% in the Spring.

If projects are paused due to viability issues, contractors may start to take a view on overheads and profit and risk profiles, to maintain pipeline. However, it is worth remembering the strong pipeline of projects, particularly the continuation of large infrastructure programmes as well as the need for investment to support the transition to net zero carbon and defence and energy security priorities.

As per our previous advice, it is important to consider inflation on a case-by-case basis; factors such as size, sector, specification and procurement and tendering strategies may all influence tender prices. Market appetite is also important, as this impacts whether the cost uplifts are fully incorporated, or a risk premium is added.