BCIS tender price index predicts construction growth will slow in 2008 due to credit crunch

The price of new construction work rose sharply in fourth quarter of 2007 with tenders rising well ahead of general inflation, according to the latest tender price index compiled by BCIS Building Cost Information service (BCIS).

Despite strong growth in new work output last year, the growth rate is expected to slow in 2008, partially as a result of the recent credit crunch; some investors are delaying or cancelling schemes that were in the pipeline. However, there should be sufficient work in 2008 to keep growth above trend.

New work output is likely to grow a little faster than trend in 2008, rising more steeply in 2009, before slowing to a little behind trend in 2010.

Next year's rate of new work output growth will rise mainly as a result of strong growth in public sector funded schemes, particularly in the infrastructure and public non housing sectors. With public sector growth slowing in 2010, total new work output growth is also expected to slow down.

Peter Rumble, BCIS information services manager, said: “Despite contractors being a little nervous about the level of workload in quarter one this year, tender prices are likely to rise on the back of strong new work output growth in 2007 as a whole, and the expected above trend growth through 2008.

“Tender price rises are expected to continue to significantly outstrip general inflation over each year of the forecast period, as a result of above trend increases in new work output and pressure from input cost rises.”