Soaring energy costs to drive 5.5% tender price rise this year

Aaron Morby 2 months ago
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Mace is forecasting average tender prices will rise by 5.5% this year after a record jump of 7.5% in 2021.

The firm predicted a fresh round of tender price inflation would be driven by soaring energy costs, stoked by the war in Ukraine.

Matt Fitzgerald, commercial director at Mace Cost Consultancy, warned that firms would have to navigate further price volatility against a market background of slowing demand driven by rising interest rates in the face of global inflationary pressure.

“Construction orders look strong as we go through the first quarter of 2022 however this growth is likely to be tempered by geopolitical factors driving rising oil and gas prices.

“This, combined with inflation, interest rate and taxation rises will put pressure of the cost of living, the cost of borrowing and construction costs which in turn may translate into a slowing of growth in the economy over the medium term.”

Mace tender price forecast


In the near term he said: “Once again, price rises are likely to be a major problem.

“Worryingly, US lumber prices, which had eased, have been rising again and global supply chain problems have barely eased.

“Moreover, gas prices rose substantially in the second half of last year and Russia’s invasion of Ukraine temporarily pushed Brent Crude oil prices over the price of US$120 per barrel.

“This will hurt energy-intensive products such as bricks, plasterboard and glass, and given transport is an important component in numerous products, oil having risen so substantially since the start of the year will lead to more widespread worries.”

Fitzgerald also warned that Russia was a major producer of a number of key raw metals, including aluminium and copper alongside iron ore and lithium.

He said: “Another area of geopolitical concern for the UK construction industry comes from Chinese developers.

“Evergrande, the world’s most indebted property developer defaulted on its debt in December and is now in a restructuring process.

“Furthermore, work has essentially stopped at a £900m project in Battersea due to problems with a second Chinese developer. Chinese investment has long been key, particularly in London, and with little chance of other countries replacing this flow of money, the number of new projects may suffer.

Fitzgerald predicted that the confluence of further rise in tender prices and rising borrowing cost would like force developers into cancelling more schemes.

“It may not be until the second half of the year that the level of demand destruction becomes more apparent, but it now seems almost certain that some jobs which were previously feasible are cancelled or put on hold.”

 

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