The fall in tender prices in Q1 2013 (1.75%) is not seen as a return to falling prices, but more of a settling down at the higher level seen over the last two quarters.

Tender prices fell by 1.75% in Q1 2013 following a 6.4% rise in the previous quarter. The fall in tender prices in first quarter 2013 is not seen as a return to falling prices, but more of a settling down at the higher level seen over the last two quarters.

The marked increase of 5.6% between Q1 2013 and the same quarter in 2012 is exaggerated by a significant fall in tender prices in Q1 2012. However, the fluctuation in the BCIS All-in Tender Price Index over the preceding quarters reflects a market caught between rising input cost pressures, both current and future, and the downward pull of construction workload.

The total volume of construction orders remained unchanged in Q1 2013 compared with the same quarter in 2012, but fell by 10% compared with the final quarter of 2012.

Comparing Q1 2013 with Q4 2012, the public non-housing and the private industrial sectors saw double digit increases, with a rise in orders of 10 and 12% respectively. The infrastructure sector was the only sector to see orders fall by a staggering 50%.

The fall in orders across the infrastructure sector was also substantial between Q 1 2013 and the same quarter for the previous year, with a drop of 39%. All other sectors recorded sharp increases, apart from the private industrial and the private commercial sectors where orders fell. However, to put the large fall in orders in the infrastructure sector in perspective, orders rose by 50% in this sector in 2012 as a whole.

Total construction work output for Q1 2013 fell by 2% compared to the previous quarter and by 6% compared with a year earlier. Additionally new work output fell by 3% in Q1 2013 compared with Q4 2012 and by 8% compared to a year earlier. Comparing Q1 2013 to the same period for 2012, all new work sectors experienced a fall in output, with the exception of the private industrial sector where output increased by 7%.

Materials prices remained unchanged in Q1 2013 compared with both the previous quarter and a year earlier. For the construction sector as a whole, average weekly earnings (AWE) fell by 1.3% compared with a year earlier. Earnings fall short of AWE across the economy as a whole which saw growth of 0.8%.

Peter Rumble, BCIS information services manager commented: “Latest data suggests tender prices have bottomed out and are anticipated to rise slowly over the first year of the forecast period, slightly ahead of building costs. As demand improves towards the end of the forecast period in 2018, tender prices are expected to rise more steeply, as contractors in an improving market try to recoup some of the losses incurred over the recessionary years.

“While new work output is expected to fall again in 2013, although to a lesser degree than in 2012, we anticipate a return to modest growth in 2014, with the recovery gathering momentum over subsequent years. Strong growth is expected in the infrastructure sector, over the forecast period, with the government investing £70bn into infrastructure projects between 2015 and 2021. The initial recovery will also be driven by the private housing sector partly as a result of various government initiatives designed to boost the housing market.

“The forecast for the construction industry over the five years should be viewed in the context of the economy as a whole, which is not expected to see a return to its long term average growth level until 2016, at the earliest.”

The full report ‘BCIS Quarterly Briefing – Five Year Forecast of Building Costs and Tender Prices’ is available online as part of a subscription to various BCIS Online services. For more information visit www.bcis.co.uk.