UK market intelligence: cool heads needed in face of inflationary pressure
Our UK market intelligence report for Spring 2022 analyses the challenges and outlook for the construction industry as it experiences a second wave of inflationary pressure, testing firms’ resilience.
The economic shockwaves from Russia’s invasion of Ukraine have sent fuel prices soaring across the world – adding pressure to a UK construction industry already buffeted by rising input prices after years of Brexit and pandemic disruption.
Against this backdrop, our latest UK market intelligence report outlines significant upward revisions to our quarterly forecasts – particularly the inflationary predictions for 2022.
Our central forecast in 2022 suggests tender price inflation could hit an annual rate of 8.5 percent for real estate and 6 percent for infrastructure. However, our analysis indicates that beyond 2022 there may be a settling of conditions in the longer term.
Construction is still relied upon as a key engine in the post COVID-19 recovery and in achieving net-zero goals. Identifying how to mitigate and tackle the impacts of this soaring inflation will therefore be vital for both the sector and the wider UK economy.
Economic outlook: firm footing but uncertainty ahead
The construction sector is operating from a position of relative strength. Construction output expanded by 2.4 percent in the three months to the end of February 2022, according to figures from the Office of National Statistics – well above other key economic activity areas such as services and agriculture.
Despite sector confidence likely being knocked by the Ukraine conflict, new construction orders are growing at their fastest rate since August 2021 and this has not yet triggered an abrupt fall in output. However, uncertainty remains high, with the Bank of England forecasting overall GDP growth roughly one percentage point lower for 2022 than previously expected.
Decreasing consumer spending could feed through, impacting investment pipelines and softening construction market demand – though any prolonged contraction remains unlikely.
Getting the basics right
As our higher tender price inflation predictions show, the impact of the Ukraine conflict has had a significant near-term impact on inflation, with these exceptional conditions adding further complexity to the fallout from the pandemic and ongoing adaptation to Brexit.
In the face of uncertainty and rising prices, businesses must keep cool heads - maintaining pragmatic, flexible procurement and greater collaboration with the supply chain. This is the time to focus on getting the basics right, with clear planning that factors in time for early engagement with suppliers, better understanding and apportioning risk, and maximising value over hitting target costs.
Read the full report to see more economic data and insight, and to find out more about tender conditions in the UK.