Mace has revised its forecast for tender price growth this year to 3%, followed by a 3.5% increase in 2022, driven by surging materials costs.
In the latest edition of its Market View for Q3, Mace warned materials prices were 6.6% higher in June 2021 than they were in March, with a further 4.5% jump in July.
The shortage of domestic HGV drivers, combined with shipping issues between China and Europe are not expected to resolve this year, hitting costs, delivery timescales and construction output, Mace warned.
Nonetheless, Mace was optimistic that the drag on output that has occurred in April, May and June will be temporary, with new orders at their best level in four years.
But a high number of job vacancies in construction, which rose to 38,000 in the three months to July – over 10,000 more than seen on average in the few years before the pandemic – would push up pay rates and have a knock-on effect on tender prices, it said.
Steven Mason, managing director for cost consultancy at Mace, said: “While there are indications that some material prices may be starting to ease, there is increasing expectation that the labour market is starting to tighten with the potential to drive costs up further.
“As market confidence and the work pipeline improves, the supply chain has become more reluctant to absorb these sustained increases in input costs. The underlying expectation that market activity will continue to increase as the workforce starts to return to the workplace only heightens the sense that tender prices will continue to rise as we progress towards the final quarter of the year, and we have adjusted our forecasts for 2021 upwards to reflect this.”
