Materials cost inflation falls again but construction weekly earnings continue to outperform those of the wider economy. Michael Hubbard of Aecom reports

01 / Key changes

  • Construction materials cost inflation fell by 1.4% in the year to June 2015
  • Consumer price inflation recorded 0.1% annual change in July and is forecast to remain below 1% for the foreseeable future
  • Average weekly earnings for the construction sector outperformed the same measures for the economy as a whole
  • The rout of commodity prices continued through Q2 2015.
Percentage change year-on-year (Q2 2014 to Q2 2015)  
Building cost index+1.4
Mechanical cost index+1.5
Electrical cost index+2.0
Consumer prices index0.0
(Q2 2015 figures are provisional) 


Building cost index

Building costs increased in the year to Q2 2015 by 1.4%. Labour costs increases continue to lead the changes in overall building cost inflation over the year.

Mechanical cost index

The rate of annual change at Q2 2015 eased to 1.5%. Labour cost inflation contributed most of the annual increase.

Electrical cost index

The electrical cost index increased by 2.0% over the year, despite large falls in many input costs for metals commodities.

Consumer prices index

The consumer price inflation rate recorded no annual change at Q2 2015.

The following chart shows Aecom’s index series since 2005, reflecting cost movements in different sectors of the construction industry and consumer prices.

AECOM indices

Guide to data

Aecom’s cost indices track movements in the input costs of construction work in various sectors, incorporating national wage agreements and changes in materials prices as measured by government index series.

They are intended to provide an underlying indication of price changes and differential movements in the various work sectors but do not reflect changes in market conditions affecting profit and overheads provisions, site wage rates, bonuses or materials’ price discounts/premiums. Market conditions and commentary are outlined in Aecom’s quarterly Market Forecast (last published April 2015).

02 / Price adjustment formulae for construction contracts

Price Adjustment Formulae indices, compiled by the Building Cost Information Service are designed for the calculation of increased costs on fluctuating or variation of price contracts. They provide guidance on cost changes in various trades and industry sectors – for isntance, those including labour, plant and materials – and on the movement of work sections in Spon’s price books.

The 60 building work categories saw an average decrease of 0.25% on a yearly basis. Higher rates of change were seen in the following categories:

Price adjustment formulae  
July 2014 – July 2015% change
Cladding and covering: zinc+7.4
Finishes: flexible tiles and sheet coverings+4.6
Pipes and accessories: clay and concrete+4.5
Brickwork and blockwork+4.2
Concrete: in-situ+3.8
Windows and doors: aluminium+3.4
Suspended ceilings+3.4


The largest price decreases include:

Price adjustment formulae 
July 2014 – July 2015% change
Metal: decking-9.6
Concrete: reinforcement-7.8
Piling: steel-5.8
Windows and doors: steel-5.8
Cladding and covering: coated steel-5.7
Raised access floors-3.7
Waterproofing: asphalt-3.1




03 / Summary

  • Consumer price inflation continues to skirt a zero rate of annual change ▼
  • Manufacturing input prices fell again in the year to June ▼
  • Industry output prices continue to decline but the rate of change slowed marginally ▼
  • The commodity price rout continues ▼
  • Construction materials price inflation softens in Q2 2015 ▼

04 / Key indicators

Construction industry

The All Work material price index fell by 1.4% in the year to June 2015. Materials inflation related to housing dropped by -0.5% over the last 12 months in June, with non-housing materials falling further at -1.8%. M&E services materials also declined by over 1% in the last 12 months but housing-specific mechanical services materials rose marginally.

Construction materials% change Jun 2014 – Jun 2015* 
New housing–0.5
Non-housing new work–1.8
Repair and maintenance–1.8
Mechanical services materials  
Housing only+0.5
Electrical services materials–1.5


 % change Jun 2014 – Jun 2015*
Imported plywood+6.3
Insulating materials (thermal or acoustic)+5.0
Clay bricks+4.7
Ready-mixed concrete+4.5
Pre-cast concrete products: bricks, blocks, tiles 
and flagstones+3.9
Central heating boilers+3.3
Metal sanitaryware-2.4
Sawn wood-5.3
Asphalt products-7.0
Imported sawn or planed wood-7.6
Fabricated structural steel-11.6
Concrete reinforcing bars-14.0


Data sources:  ONS and BIS

UK economy

Consumer prices% change Jul 2014 – Jul 2015 
Consumer Prices Index0.1


The annual rate of consumer price inflation recorded 0.1% annual change in July 2015. Forecasts for CPI remain below 1% for the foreseeable future.

Industry input costs% change Jun 2014 – Jun 2015 
Material and fuels purchased by manufacturing industry–12.6
Materials and fuels purchased by manufacturing industry excluding food, beverages, tobacco and petroleum industries–4.0

The pace of price deflation increased to -12.6% in June 2015. This continues a trend of slowing or falling input prices since autumn 2011. Core input inflation, which excludes volatile items, posted -4.0% over the year. Crude oil was the overwhelming contributor towards the annual change in input prices.

Industry output prices% change Jun 2014 – Jun 2015 
Output prices of manufactured products–1.5
Output prices of manufactured products excluding food, beverages tobacco and petroleum+0.1

Factory gate prices continued to decline in June 2015 on a yearly basis, but the rate of price falls slowed from -1.6% in May 2015. Factory gate inflation has been declining since autumn 2011. The core index, which is narrower because it excludes items such as petroleum and food, maintained its recent rate of change, increasing 0.1% in the year to June.

Source: ONS

Metal prices

Metal prices

Source: LME

 % changeJuly 2014 – July 2015

Source: LME


The rout of commodity prices continued through Q2 2015. In the last 12 months, prices of all headline metals commodities fell – anywhere between 14% and 45% – with many hitting four-year lows. Copper is down over 25% since July last year and nickel by more than 43%. The iron ore drubbing also continues, as does that of oil, both down by 51% and 48% respectively over the year. Aggregated gauges of commodities posted 13-year lows in August.

China is playing a key role in the commodities story because of its size as the world’s biggest consumer of commodities. Significant changes to its demand for commodities, combined with general oversupply and a slower global economy, have forced prices lower. Futures contracts also indicate weak prospects for commodities price levels, with expected future US dollar strength, above-trend rates of metals supply and slowing global economic growth all playing a part in this outlook.

Exchange rates

Exchange rates

 July 2014 averageJuly 2015 average% change
Euro to sterling1.2611.413+12.1
US dollar to sterling1.7081.556–8.9


Following sterling’s pause of its long appreciation against the euro in Q1 2015, some upward momentum was regained towards the end of Q2 2015. The Greek drama played a part in weakening the euro against sterling, along with general uncertainties about the economy in Europe.

The US dollar weakened further against sterling over the course of Q2 2015. Sterling recovered some ground against the US dollar though, before sterling posted slightly weaker numbers very recently as the Bank of England indicated a dovish tone with respect to the timing of bank rate increases.

Recent devaluation to the Chinese Yuan also led to speculation about the relative strength of the Chinese economy, which in turn affected emerging market currencies and commodities. The near 2% adjustment led to its largest one-day change in a decade. The US dollar is likely to appreciate further, which will focus attention on emerging market currencies and the strength – or otherwise – of their respective economies.


05 / labour market statistics

  • In June 2015, average weekly earnings (total pay including bonuses) in construction fell to £560 from £576 in May 2015. Annually, earnings rose 1.4% in June on a single-month basis, and 3.5% annually on a three-month average basis. Regular pay (excluding bonuses and arrears) increased to £544 per week, with annual rates of 2.3% on a single-month basis and 2.7% using a three-month average.
  • Construction industry regular pay exceeded similar changes to average earnings for the whole economy. Total average weekly earnings for the whole economy measure were £488 in June, which represented an annual rate of change of 2.4% (three-month average basis).

06 / Wage agreements

Construction Industry Joint Council

The parties to the Construction Industry Joint Council agreed a pay deal which saw pay rates increase by 3% from 30 June 2014, and a further 3% rise from 29 June 2015. Travel and fare allowances also increased from 30 June 2014, along with subsistence allowances increasing to £35 a night from 6 January 2015. The agreement also addresses changes to sick pay.

Joint Council Committee of the Heating, Ventilating and Domestic Engineering Industry

A 2.5% increase in hourly wage rates came into effect from 6 October 2014. Amendments to the basic working week also apply from the same date, as the number of hours per week reduces from 38 to 37.5. Changes to the level of weekly sickness and accident benefit are also planned.

The Joint Industry Board for the Electrical Contracting Industry

Members received a 2% pay rise in January 2015, which will be followed by a 3% increase from January 2016.

Building and Allied Trades Joint Industry Council

The Building and Allied Trades Joint Industrial Council (BATJIC) agreed a two-year pay deal effective from 30 June 2014. The deal involves variable wage rises for the standard wage rates averaging 2.5%. A further set of rises averaging 3% come into effect from 29 June 2015. Annual holiday entitlement will increase by one day, as of 29 June 2015, from 21 days to 22 days, making a total of 30 days including public holidays.

The new BATJIC rates of wages are:

Standard rates of pay for 39 hours per weekPer weekPer hour
S/NVQ3: Advanced£436.80£11.20
S/NVQ2: Intermediate£376.35£9.65
Adult general operative£327.60£8.40
For entrants aged 19 years and over  
Third 12 months with NVQ2£344.37£8.83
Third 12 months without NVQ£299.52£7.68
Apprentices under 19 years of age  
18 years of age with NVQ2£308.51£7.91
18 years of age without NVQ2£291.63£7.48



The following table summarises the wage agreements currently in force for the principal wage fixing bodies within the construction industry

OperativesAgreement bodyCurrent basic hourly rateEffective sinceDetails inDate of next review
Builders and civil engineering operativesConstruction Industry Joint CouncilCraft rate: £11.33 / hour29 June 2015Spon’s Architects’ and Builders’ Price Book 2016June 2016
 Building and Allied Trades Joint Industrial Council (BATJIC)S/NVQ3 advanced craft: £11.50 / hour26 June 2015Spon’s Architects’ and Builders’ Price Book 2016June 2016
PlumbersThe Joint Industry Board for Plumbing Mechanical Engineering Services in England and WalesAdvanced plumber: £14.06 / hour5 January 2015Spon’s Architects’ and Builders’ Price Book 20164 January 2016
 Scottish and Northern Ireland Joint Industry Board for the Plumbing IndustryAdvanced plumber: £13.41 / hour6 July 2015Spon’s Architects’ and Builders’ Price Book 2016A two-year agreement: Year 1 2015 = 2.5% Year 2 2016 = 2.0%
H&V operativesJoint Conciliation Committee of the Heating, Ventilating and Domestic Engineering IndustryCraftsman: £11.84 / hour6 October 2014Spon’s Architects’ and Builders’ Price Book 20155 October 2015
Electricians (national)The Joint Industry Board for the Electrical Contracting IndustryApproved electrician: £15.61 / hour (own transport)4 January 2016JIB for the Electrical Contracting IndustryA two-year agreement Year 1 2015 = 2% Year 2 2016 = 3%
 Scottish Joint Industry Board for the Electrical Contracting IndustryApproved electrician: £15.61 / hour (own transport)4 January 2016SJIB for the Electrical Contracting IndustryA two-year agreement Year 1 2015 = 2% Year 2 2016 = 3%