No end to construction materials inflation in sight

25 June 2021

Construction material price rises are unlikely to slacken in the immediate future as freight delays and high demand continue to push up inflation, according to a report.

Turner & Townsend’s latest UK Market Intelligence Report said high prices were largely being driven by improving domestic and global demand and fragmented global supply chains as a result of Covid-19 and Brexit.

However while these factors could start to ease, a series of other factors mean inflation is likely to persist.

These include increased government investment and a new pipeline of work, which had been deferred by the pandemic, coming onstream.

This is combining with reduced manufacturing capacity, freight delays, and red tape and customs delays caused by Brexit legislation.

A shortage of freight containers has contributed to bulk purchasing of materials and exacerbated the shortage of construction materials.

Production slowdowns during the first wave of Covid have led to reduced manufacturing capacity.

Increased oil prices – now past $60 a barrel – and the drive to achieve net zero CO2 emissions by 2050 are also likely to push up production costs.

The report predicted real estate tender price inflation will rise to 1.5% in 2021 from -2.0% in 2020.

The increase could grow to a potential 4.5% rise by 2025 and is likely to be accompanied by an even greater rise in infrastructure tender prices.

Government investment creating a pipeline of infrastructure projects is likely to mean inflation is forecast to rise from 1% in 2020 to 5% by 2025.

May’s IHS Markit/CIPS UK Construction Purchasing Manager’s Index found input cost inflation had soared to its highest level since records began two and half decades ago.

The report warned the new Fire Safety Act (2021) and Building Safety Bill are likely to increase burdens on the sector around material sourcing and other factors. 

Martin Sudweeks, UK cost management managing director at Turner & Townsend, said: “It’s clear that higher costs and tender prices are something we will need to monitor and adapt to.

“What matters is that businesses are prepared, and consciously control their costs and manage their risks. This means close collaboration and an intimate knowledge of your global and local supply chains.

“Now is the time to be decisive, and to listen and communicate with suppliers and contractors at every level – keeping a firm grip on the dynamics within the market.”

Meanwhile, the Construction Leadership Council has warned an unprecedented materials shortage in the UK construction industry is likely to continue, with timber, roof tiles and bagged cement in shortest supply.

Builders Merchants Federation chief executive John Newcomb and Construction Products Association chief executive Peter Caplehorn have also spoken of unprecedented demand outstripping supply.

“Demand both in the UK and globally continues to dramatically outstrip supply and shows few signs of slowing during the seasonally busy summer months,” they said in a statement.

“Inevitably, all of this is feeding into price inflation, and the expectation is that high demand, coupled with tight supply, will sustain elevated prices throughout the year.”

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