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Civil engineering costs set to see steady rises

Civil engineering will rise over the next five years as rail and utilities work drives infrastructure, according to the latest research from BCIS.

Civil engineering costs are forecast to grow over the next five years as wages and materials prices edge up. But in the short term civil engineering materials prices will drop, dampening overall cost inflation.

The latest Building Cost Information Service Civil Engineering Market Report reveals that civil engineering costs rose by 0.7 per cent over the year to Q1 2013. Costs are forecast to rise by a further 0.7 per cent over the following year, as materials prices drop and wage increases begin to stir after two years of stability.

“We are predicting average materials cost rises of 2 to 3.5 per cent for materials over the forecast period – the price of oil will have a dramatic effect”

Peter Rumble, BCIS

Overall civil engineering cost rises will then gain pace, with forecast increases of 3.4 per cent in 2015 and 2.6 per cent in 2016.

Materials prices rose by 0.3 per cent in Q1 2013 compared with the previous year. Individual materials saw rises of up to 1.5 per cent, but falls were recorded for cast iron and spun iron products, along with steel reinforcement.

Oil prices to temper costs

BCIS information services manager Peter Rumble says a drop in oil prices, which is assumed for the first year of the forecast, will result in a dampening effect on civil engineering costs as a whole.

BCIS civil engineering costs forecast Q1 13-Q1 18

Source: BCIS

“Other economies, such as China, did not do as well as they previously had,” he says. “We are predicting average materials cost rises of 2 to 3.5 per cent for materials over the forecast period – the price of oil will have a dramatic effect.”

In the short term, rises in civil engineering costs are likely to occur as a result of wage growth, which had remained stagnant over the past two years. “My feeling is that, as we are predicting a fairly slow return to growth, then we might see some demand for labour coming back,” Mr Rumble says.

Rail and electricity to drive infrastructure

The infrastructure sector is widely tipped to be a strong contributor to any forecast recovery, despite a 13 per cent fall in output during 2012.

ONS breakdown of civil engineering output 2012

Source: ONS

The largest growth in output will come from rail and electricity over the next year, and the latest breakdown of output in the infrastructure sector released by the Office for National Statistics shows the two sub-sectors led the charge in 2012.

Rail and electricity accounted for half the total infrastructure output between them; though only worth 16 per cent, there are also some positive signs for roads output.

“Roads were hit hard, but the release of more money for roadworks means it will not decline as much as we’d have previously thought,” Mr Rumble predicts. “The comparison on output will be coming from a low base, but we will see stronger growth.”

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