In this quarter’s update, Peter Fordham of Davis Langdon reports on the soaring consumer prices index, the rising cost of construction materials and the latest pay awards for workers

01 Key trends

  • Construction materials prices maintain high rate of increase
  • Mechanical and electrical prices ease, but this may be shortlived
  • Steel prices continue to rise
  • Copper and other metals rebound to record levels
  • Wage increase for builders to apply in a fortnight

The rate of increase of the consumer prices index is up, while the building series is steady. The consumer index hit 3.1% in March, triggering a letter of explanation from the governor of the Bank of England because the figure was more than 1 percentage point above the 2% target. It is forecast to drop to the target figure over the year.

The rate of inflation in the mechanical and electrical indices has slowed. Inflation in the mechanical cost index stood at 7.1% in the third quarter of 2006, as material prices touched 10%, but declining copper prices halved the rate of increase. The rate of increase of the electrical index declined and is at its average for the past six years.

The building index was in line with its six-year average and has been running broadly at the same level for the past six months.

Guide to data

Davis Langdon’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 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 or premiums.

Market conditions are recorded in Davis Langdon’s quarterly

Market forecast (last published 4 May).

02 Price adjustment formulae for construction

Price adjustment formulae indices are designed to calculate the increased costs on fluctuating price contracts. Over the 12 months between April 2006 and April 2007, the 60 building work categories recorded an average rise of 5.8%, down 0.5 percentage points from three months ago.

Prices in the 2007 editions of Spon’s were based on materials prices collected in spring 2006 and the wage award that came into effect at the end of June. Over the nine months from July 2006 to April 2007, the 60 building work categories registered an average increase of 2.6%, but the highs and lows around that figure are shown below.

The price of copper and aluminium components went into reverse after the increases of 2005/6. Copper pipes and accessories increased 47% between July 2005 and July 2006, before declining 15% by March 2007. Copper cladding and covering performed similarly. Aluminium windows and doors followed the same pattern but with lower movement. The price of lead covering fell between April and July 2006 but the price of lead has been rising since.

World steel prices have been rising since the beginning of 2006 and, in Europe, prices have increased 50% over the past 16 months. High oil prices pushed up the price of macadam and asphalt and an increase in demand for timber led to shortages and higher prices in the UK.

Materials

Construction materials prices are still on the up and up, and the falling cost of gas hasn’t stemmed the tide of growth in input prices

03 Executive summary

  • Consumer price inflation retreats
  • Manufacturers’ input prices creep up despite rapidly falling gas prices
  • Manufacturers’ output prices following suit
  • Construction materials prices still increasing strongly
  • Mechanical and electrical services materials prices down but trend may be shortlived
  • Steel prices dominating construction materials price rises

04 Key indicators

(See attached file)

Labour

Most workers are looking at 3.5-4.5% rises, but BATJIC semi-skilled rates are up 6%

05 Executive summary

(See attached file)