London is the engine room for the UK construction industry and leads the way in UK price inflation. London’s surging population is driving a buoyant construction market supported by major residential and transport master plans, and regeneration and renewal of former industrial and residential neighbourhoods undergoing planning rezoning.
Despite annualised output at 57 percent higher than the low ebb of 2008, the pace of growth slowed to 0.4 percent in the final quarter of 2016. This was despite the inflationary impact of a weaker sterling and suggested that capacity levels, particularly reflected in easing wage inflation and margin pricing, were returning to more sustainable levels.
Although tender price inflation in London will be underpinned by a strong demand for infrastructure work, the forecast is for price inflation to reduce over the next 12 months to compensate for lower underlying levels of new work and increased competition and risk appetite owing to capacity returning to the market.
The outlook for pricing remains volatile, however, and construction firms should be vigilant and stay closer to their supply chains, who remain vulnerable to sudden fluctuations in exchange rates and skills shortages.