Consultant says industry will find it difficult to meet government’s ambitions
High demand and low supply across the industry will drive tender price inflation back up in the coming years, according to Turner & Townsend.
The firm’s winter market intelligence report forecast tender price inflation would increase from 3% to 3.5% over the next two years for buildings and from 4.5% to 5% for infrastructure.
This would be a reversal of the trend of softening inflation that has been seen since the pandemic.
T&T said demand would be driven by major government pledges, including the £100bn of capital spending announced in the Budget and its ambition to build 1.5 million homes in five years.
It suggested that supply chain constraints could limit the industry’s ability to support these ambitions, adding that construction employment had fallen by 6.6% since Q2 2022, with levels now 11% lower than before covid.
Wage inflation is rising as a result, with average rates 6.5% higher over the year to September 2024.
T&T said inflationary predictions would be higher if not for falling new work orders in sectors like housebuilding, which saw a 22% decrease from Q2 to Q3 2024.
Martin Sudweeks, T&T’s UK managing director of cost management, said: “It’s no surprise to those in the sector that overall activity and capacity is falling – but this is particularly impactful at a moment when construction should be at the very centre of driving economic revival and enabling growth.
“Every key sector identified by the UK government in its industrial strategy relies on construction to build and grow.
“To achieve this, we need to stem the wave of insolvencies and shrinking labour force. We must make sure talent is not lost as contractors close – recruiting or reskilling them to bring them back into the workforce.”
Sudweeks added there also needed to be investment in the next generation of skills, looking beyond traditional routes into industry and at “different pools of talent” from the tech sector.
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