BCIS five-year forecast

Tender prices are predicted to rise by 26% over the next five years (3rd quarter 2019 to 3rd quarter 2024).

Tender price rises are expected to be driven primarily by input cost pressures over the first year of the forecast period, rising by 3%. With improved growth in new work output over the rest of the forecast period, it is anticipated that tender prices will rise ahead of input cost increases, rising by 5.3% over the second year, then by 5.6% per annum over the following two years and by 4.5% over the final year. Upward pressure on site rates will also put upward pressure on tender prices during 2021 and 2022.

The BCIS tender price forecast includes the following:

• new construction output will rise by 32%
• building costs will rise by 19%
• tender prices will rise by 26%
• UK economy (GDP) will grow at a rate of under 2% per annum
• annual general inflation rate will rise by around 3% per annum
• interest rates will rise gradually to 1.5% in 2023
• sterling exchange rates will remain depressed for the period of the Brexit negotiations
• the main risk to materials prices will be oil prices, tariffs on imports and sterling exchange rates
• nationally agreed wage awards will be affected by restrictions in the availability from 2021.

Although leaving the EU at the end of January 2020 may reduce uncertainty initially, with the transitional period being so short, it is unlikely to have much of an effect. Uncertainty is expected to continue to affect the private commercial sector in particular, evidenced already in the retail subsector by several high street names either reducing their portfolio significantly or disappearing completely. New office construction is also expected to suffer from the uncertainty.

This forecast is based on the BCIS central scenario. Until the UK’s relationship with the EU is resolved BCIS will continue to produce three scenarios.

The graph shows the TPI forecast for all three scenarios.

The central scenario is based on the following assumptions:

• The UK leaves the EU on 31 January 2020 and a transitional period follows ending at the end of December 2020.
• During the transitional period, the UK continues to make payments to the EU (which will be deducted from the final 'divorce bill').
• Following the end of the transitional period, any trade agreements with the EU are less favourable than before the EU Referendum.
• Sterling exchange rates will remain depressed until around the midpoint of the forecast period, improving gradually thereafter.
• Free movement of labour continues to the end of the transitional period, with restrictions in movement after that.
• It remains desirable for EU workers to work in the UK and that demand for construction operatives in the EU remains unchanged.
• GDP recovers slowly during the second half of the forecast period as confidence returns.

Full details of all three scenarios are published in the BCIS online service.