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Contractors braced for cost hikes despite surging orders

Contractors are bracing for rising costs over the next 12 months but order books continue to grow, according to Turner & Townsend’s latest market intelligence report.

The consultant found that contractors expected material costs to increase by 5.3 per cent over the next 12 months.

Turner & Townsend’s price index meanwhile predicted that tender prices in 2019 would increase by 2.6 per cent in real estate and 3.6 per cent in infrastructure.

It said the rising cost of construction projects was “fuelling fears” that demand could fall over the next 12 months, with more than half of the contractors surveyed saying they expected the market to slow.

Firms focused on the London market were said to be the least optimistic about growth, with Turner & Townsend adding that London could be a “forward indicator” for what is in store for other regions.

However, its report noted that contractors’ order books for the 2018/19 financial year filled up at their fastest rate on record between Q1 and Q2 this year. 

Turner & Townsend UK managing director of cost management Paul Connolly said rising prices and a cooling market would put further strain on construction supply chains.

“Clients must remain vigilant and in practical terms, this means re-running credit checks and challenging suppliers on their ability to continue delivering, while also seeking to understand and allay their concerns,” he said.

Meanwhile a survey from the Royal Institute of Chartered Surveyors released today showed companies continued to expect profit margins to decline over coming year, with a net balance of -3 per cent of those surveyed in Q3 predicting a fall.

RICS also reported that 75 per cent of firms were finding it harder to get financing, which was holding back growth.

Respondents to RICS’s survey expected access to finance to worsen over the next year.

Data from the Bank of England revealed this week that construction companies were facing the longest decline in lending since 2011.

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