08/01/2003

Construction tender prices outstrip inflation

The price of new construction work rose in excess of five times the rate of general inflation in the year to third quarter 2002, according to the latest tender price index compiled by the Building Cost Information Service (BCIS).

Tender prices rose by 8.5% between Q3 2001 and Q3 2002, with general inflation only rising by 1.6% over the same period. Input costs over the period rose by 5.1%. Tender prices fell by 1.0% in Q3 2002 compared with the previous quarter but tender prices rose very sharply between the first and second quarters of 2002.

Peter Rumbles of BCIS commented: "The fall in tender prices in Q3 2002 compared with the previous quarter could be as a result of contractors overestimating the cost effect of the Aggregate Levy in tenders in the early part of Q2 2002, and some uncertainty about the commitment of future public spending prior to the Chancellor's Pre-Budget Report.

"However, despite the economy as a whole not doing as well as expected this year, the Chancellor, in his recent Pre-Budget Report, reaffirmed his public spending commitments laid out in the 2002 Comprehensive Spending Review."

Strong growth in new work output so far in 2002 suggests that growth for the whole of 2002 will be considerably higher than its long-term annual trend rate of 2%. In 2003, new work output is expected to continue to grow well ahead of trend, rising above but closer to trend in 2004.

Peter Rumble concluded: "Annual tender prices are likely to continue to outstrip inflation over the next two years due to strong growth in new work output and above inflation input cost increases."

(CL)

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