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Growth in labour rates slows down across UK

COSTS - Tender prices likely to rise above inflation over next two years

CONTRACTORS' input costs rose by 4.2 per cent in the year to September 2006, and by just 1.2 per cent in the past quarter, according to the EC Harris/Construction News Contractor's Input Cost Index.

A slowdown in the rise of skilled labour rates meant that these costs increased by 2.6 per cent over the year, while materials prices were 6 per cent higher than in September 2005.

Prices of steel products still seem to be reacting to the crisis that developed in 2004. Having been restrained for most of the past year, reinforcement prices rose by 11.7 per cent in the past three months and are 15 per cent higher than a year ago. But structural steel prices were just 0.7 per cent higher than in June and are 4.5 per cent up on September of last year.

The rise in materials prices has been balanced by a slowdown in labour rates. Rates for skilled workers fell slightly in the past three months and are now 2.6 per cent higher than in September 2005.

There are substantial regional variations in labour rates.

The slowdown was most pronounced in the south-east, where rates are currently 2 per cent lower than a year ago, while in London they are unchanged.

Rates in Wales have increase by 12 per cent over the past year, with Scotland up by 6 per cent. But labour rates in London are still the highest and in Wales they are still among the lowest in the UK.

Skilled bricklayers in London are now on £170 per day while in Wales £130 per day is the norm. Northern Ireland has the lowest rates, with bricklayers earning £128.50 a day and carpenters £125.50.

The three-year wage agreement for building and civil engineering workers, which came into effect at the end of June, is worth 14.5 per cent over the next three years, with basic rates for craftsmen of £9.32 per hour and labourers on £7.

The differences in labour rates across the UK go some way to explaining the regional variations that are seen in tender prices.

Materials prices tend not to show the same sort of local variations, although there are circumstances in London which make materials delivery more expensive than to most places in the UK. As a result prices in the capital are 9 per cent higher than the national average.

Price hikes have been reported for a number of other materials that are not directly covered by the survey - increased world demand for copper means that its prices have more than doubled in the past year, with an obvious knock-on effect on M&E installation costs, while plasterboard prices are also showing some increase ahead of the norm.

More steel price rises are expected this year, although the long-term forecast is that world prices for steel will fall as mills in China come on stream.

Costs of materials in the Channel Islands are moving at the same rate as the rest of the UK, up 2.4 per cent over the past three months and by 5.3 per cent over the past year, while labour rates are shadowing the price increases on the mainland. Labour rates, which average £133 per day, are only slightly h igher than in Wales.

Construction activity is expected to continue apace over the next two years and tender prices are forecast to rise faster than input costs and retail price inf lation.

In London, as the Olympics construction programme provides more workload from mid-2007 onwards, tender prices should show further increases, although the Games are only expected to lead to a 1 to 1.5 per cent increase in tenders.