The industry is experiencing the highest ever rise in material costs, according to figures released by accountant PKF.

Research for the firm on the small and medium construction business sector found a 17% increase in input costs from the first to the second quarter this year. PKF claimed this was the highest cost inflation ever recorded.

The firm’s report attributed the rise in steel, oil, glass and brick processing to the economic boom in China. The report said: “China’s insatiable demand for raw materials to fuel its industrial output continues to drive world shortages and price increases.

The firm said these massive price hikes could impact on contractors’ margins. Stuart Barnsdall, a partner at PKF, said: “If these steep increases in costs cannot be passed on to the customer, margins will fall and greater levels of activity will simply increase financial risk.”

The PKF report found work levels and orders had improved after a blip in the first quarter of the year.

The firm’s research was mirrored by figures released by research organisation Experian Business Strategies, whose activity index has matched its highest point in the past 10 years.

Experian said, according to the latest updates, construction output would be at 3.4% in 2004, down from 4.4% in 2003. It is forecast to slow to 2.7% in 2005, before picking up again to 3% in 2006.

Architects’ fees in the UK have increased 45% from 2000 to 2003, according to figures from research firm Market & Business Development. It found that fees totalled just over £3bn last year and will jump another 5% in 2004.The research also found that, between 2005 and 2009, a further 7% rise would occur leading to a level of £3.5bn by 2009.