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Material and labour costs up but credit crunch puts brakes on orders

Construction companies’ material and labour costs are up nearly six per cent over the past year on the back of ballooning global materials prices, according to the latest EC Harris/-Construction News Contractor Input Cost Index.

But the 5.8 per cent annual increase in input costs has been blunted by the fact that costs have only marginally increased in the past three months, compared with large rises in the earlier quarters of the year.

It is thought this may be due to the effect of the global credit crunch, reducing investor confidence leading to a fall in orders.

Juliet Spackman, of the EC Harris cost research team, said: “Over the course of 2007, increased worldwide demand, along with record costs for shipping and oil, has seen material costs go up across the board.

“Timber prices have seen the highest annual rise, totalling 13 per cent over the year, after growing international demand in the Chinese, North African and Middle Eastern markets.

“There have also been significant price increases for reinforcement and steel, though the majority of this rise was witnessed in the first two quarters of the 2007.”

Less dramatic rises have also been seen for other materials with price increases for concrete (6.4 per cent), brick (6.3 per cent) and block (6.1 per cent) all beating retail price inflation.

Despite clear skills shortages in parts of the industry, -labour cost hikes have been less severe. National average labour rates increased by 4.4 per cent in the past 12 months.

The influx of eastern European labour is believed to be behind this, reining in some of the double-digit cost growth seen in previous years.

But such increases are still being seen in patches, with the North and North-west of England seeing labour costs rise by 19 per cent and 11 per cent respectively.

Northern Ireland continues to lag behind the rest of the country, paying almost 20 per cent less than the average national wage. Firms in London and the South-east can expect to add on an extra 10 per cent to the average for their workers.

And with strong growth -anticipated in infrastructure and private residential work allowing contractors to be more selective about bidding, tender prices are expected to rise at a faster rate than input costs.