Consultant says falling materials prices and wage inflation behind drop

Optimism is growing in the construction sector ahead of the general election in July as inflationary pressures ease and a potential interest rate cute becomes more likely, according to Turner & Townsend. 

Tender price inflation for real estate will fall to 3% in 2024 from a high of 9.5% in 2022, fuelled by weakening construction demand, the decrease in value of material prices and easing wage inflation within the sector, the report said.

It comes as construction output contracted by 0.7% in the first three months of 2024 in comparison with the same time last year. The decline is partially attributed to adverse weather conditions in February, one of the wettest months on record, which delayed work.

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Optimism is growing for an increase in work once next month’s general election is out of the way

For infrastructure, T&T forecasts that tender price inflation will remain at a relatively high rate of 4.5% this year, rising to 5% up until 2028. 

The increase over the forecast horizon was put down to a number of major projects in the pipeline of work, including the water industry’s AMP8 investment programme and the construction of Sizewell C nuclear power station in Suffolk.

It is also based on a surge in the value of new orders, with an increase of 15.9% compared to the final quarter of 2023 due to the improving domestic economy. 

“The first quarter of 2024 has presented a mixed picture for UK construction as output continued to contract while new orders increased,” said Martin Sudweeks, UK managing director of cost management at T&T. 

“We know there is demand for development as public and private sectors work to spur on growth, decarbonise our real estate and infrastructure and reduce regional inequalities, but political and economic uncertainty persists at home and abroad,” he added.