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Input costs slump continues but rate of decline slows

Contractors’ input costs drop by 1.4 per cent over last three months compared with 4.9 per cent drop in previous quarter as rate of industry decline eases. By Juliet Spackman

Contractors’ input costs continue to fall, dropping 1.4 per cent over the last three months, according to the EC Harris/Construction News Contractors’ Input Cost Index.

The slump in industry output and collapse in world commodity prices continues to exert a downward pressure on input costs, though the rate of decline appears to be easing slightly after a steep drop from the record price rises and high inflation last summer.

Average input costs are now 6.2 per cent lower overall than they were in June 2008, and the downward trend looks set to continue throughout 2009 and into next year.

Materials’ prices have decreased by 2.3 per cent; while labour rates have dropped by a more modest 0.3 per cent over the same period. 

Steel has dropped by 3.2 per cent over the quarter, 10.6 per cent over the year: average prices are now £1,300 per tonne down from a peak of £1,621 in Q3 2008.

By contrast, housing materials have shown smaller adjustments over the last quarter.

There were a number of price rise notifications at the start of 2009, including bricks, cement and aggregates.

The price of concrete, blocks and timber have fallen by 0.9 per cent, 1.3 per cent and 1.5 per cent respectively; bricks have fallen by just 0.1 per cent.

Meanwhile, the weak pound has kept the price of imported goods high.

On average, 25 per cent of building materials and components are imported, mostly from the Eurozone.

This regional disparity in labour rates is considerable; where contractors in London pay 10 per cent more than the UK average, with a daily wage of £176 for bricklayers and £172 for carpenters, compared to rates of £109 and £106 for the same skills in Northern Ireland.

But as workload shrinks, there is increasing pressure on employers to cut their wage bills and construction firms have been cutting jobs at record levels.

Contractors’ input costs look likely to decline further in the months ahead. 

Many key supplier relationships are being redrawn to reflect the reality of the current market.

Further, with government borrowing at record levels and a general election looming, there are concerns about public sector investment, which the April budget did little to allay.

Meanwhile, tenders are becoming increasingly cut-throat as contractors slash overheads and profit in an attempt to secure work, with many firms facing bankruptcy by the end of the year.

Juliet Spackman is senior cost researcher at EC Harris

Mean Labour Prices June 2009

What contractors in different regions are paying

RegionBricklayers £/dayCarpenters £/dayLabour average £/day
Yorkshire and Humber160.20157.20158.70
North West171.00162.00166.50
East Anglia166.25164.25165.25
South East171.80170.20171.00
South West160.00162.50161.25
Northern Ireland108.50106.17107.33

Mean Materials Prices June 2009

What contractors in different regions are paying

RegionConcrete £/m3Rebar £/tonneSteel £/tonne
Yorkshire and Humber76.67519.001340.00
North West72.50543.751275.00
East Anglia74.05497.331414.67
South East78.02510.001353.75
South West69.58502.001263.33
Northern Ireland48.34441.671047.00

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