Turner & Townsend report that soaring inflation of labour and materials requires immediate action from the UK construction sector
Another upwards revision to its quarterly forecasts is visible in the global professional services business’ latest UK Market Intelligence Report (UKMI). Central forecasts for real estate and infrastructure tender price forecasts rises in 2022 are 4.5 and 4.0% respectively, up from Autumn 2021 predictions of 3.5% for both. Long term tender price forecasts also remain high – as far ahead as 2025 they are up to 5.0%
Growth rates are beginning to cool – these tender price forecasts are instead led by cost-push inflation as material and labour shortages continue to compound. Turner & Townsend data shows that contractor confidence decreased from Q2 to Q3 2021. In this same period, there is a quarterly fall in construction output of 0.9%, according to the Office of National Statistics (ONS).
Simultaneously, the Department for Business, Energy and Industrial Strategy (BEIS) reports that annual construction material costs from rose 22.7% to November, and the ONS outlines that construction vacancies rose by 43.3% from Q2 to Q3 2021.
A vulnerable position
The sector is in a vulnerable position Turner & Townsend reports. With pressure on labour costs, alongside the material price rises the industry is fragile and recovery is finely balanced.
This is visible in the level of insolvencies in the sector, which 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%.
The industry’s focus must now be on driving efficiency and productivity improvements to limit the supply-side cost increases, argues the new UKMI report. Unproductive firms limit the sector’s adaptability and resilience against market unpredictability.
There is a call from Turner & Townsend for businesses to embrace digitalisation and off-site construction – and use these digital tools to make Modern Methods of Construction (MMC) even more efficient.
Above all, the industry must choose a long term and outcomes-based programme in order to drive future efficiency, by allowing the industry and its businesses both big and small to plan ahead.
‘We need to enact change, and fast’
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.”
