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High inflation and low productivity ‘put construction recovery in the balance’

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The construction sector recovery hangs in the balance unless companies act to boost productivity to counteract inflation.

That’s according to Turner & Townsend, which has forecast that construction tender prices will continue to rise as a result of increasing labour and materials costs, despite cooling growth rates of construction output.

The global professional services business’ latest UK Market Intelligence Report (UKMI) shows another upwards revision to its quarterly forecasts.  Central forecasts for real estate and infrastructure tender price rises in 2022 are 4.5% and 4% respectively, up from Autumn 2021 predictions of 3.5% for both.  Long-term forecasts remain high at up to 5% as far ahead as 2025.

Contractor confidence decreased from Q2 to Q3 2021, according to Turner & Townsend, at the same time as the Office of National Statistic (ONS) reported a quarterly fall in construction output of 0.9%.  Simultaneously, annual construction material costs from the Department for Business, Energy and Industrial Strategy (BEIS) rose 22.7% to November, and the ONS reports that construction vacancies rose by 43.3% from Q2 to Q3 2021.

Turner & Townsend said that subsequent pressure on labour costs, alongside the material price rises “puts the industry in a vulnerable position with its recovery finely balanced”. 

Meanwhile, the level of insolvencies in the sector saw a quarterly rise of 18.6% in Q3 2021 according to the Insolvency Service – translating to a quarter on year increase of 80.2%.

Turner & Townsend called for businesses to make themselves more productive by embracing digital tools and offsite construction – and use this digitalisation to make Modern Methods of Construction (MMC) even more efficient. 

Martin Sudweeks, UK managing director of cost management at Turner & Townsend said: “UK construction has helped to power the economy through the pandemic and out the other side.  But 2021’s recovery in construction output and demand has come at an inflationary cost, with global supply chains remaining disrupted and labour and material prices are under strain.  The roots of this inflation are no secret to this industry, if we want to maintain the trends in growth we have seen and continue construction’s role as the economy’s powerhouse then we need to enact change, and fast.

“One route to achieving this is by driving better productivity via digitalisation, MMC and an outcomes-focused approach to major projects and programmes.  Industry adoption of these strategies has been piecemeal for too long, particularly in digital, despite its potential for transformational change.  Construction businesses that embrace the digital tools at their disposal and hold fast to a long-term programmatic approach will be those that should prosper in the months and years to come.”

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