Inflation forecasts

Most contractor respondents, 50%, ranked interest rates and inflation as the biggest threat to the construction industry. Following this, investor confidence was ranked as the most significant threat by 18% and materials and labour cost escalation by 16%.

Over 90% of respondents said that inflation is impacting the viability of schemes, maintaining the high levels of our surveys covering 2023.

Viability poses challenges for both public and private sector projects. Many schemes are going ahead, but there are often lengthy feasibility and due diligence reviews before commitment.

There is also evidence of rethinking new build schemes to minimise their carbon impact and, in the residential sector, to reflect the requirement for a second staircase.

Whilst the market is easing due to the slowing of some projects, there is still relatively strong activity due to the minimum energy efficiency standards driving retrofit and high levels of government investment, which has seen some contractors target public sector work.

Significant global investment in infrastructure and energy projects influences resource levels and input costs. The supply chain is stretched due to insolvencies and issues with labour availability. The cost of living crisis and growing housing pressures also impedes attracting overseas workers.

Therefore, whilst tender prices are becoming better aligned to estimates and the supply chain is looking to fill future pipeline, there is sufficient work. Hence, pricing is competitive but not in the realm of buying projects or undercutting. Recent issues also weigh heavily on the supply chain, which has become more risk-averse and selective.

Although there is less volatility, much global tension has the potential to quickly change the picture again.

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 essential as regional and sector variations remain.