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Worsening economy halts tender price increases

The prices construction companies are able to charge for their work over the next three years will not increase as much as previously expected, according to research by Gardiner & Theobald.

The prices construction companies are able to charge for their work over the next three years will not increase as much as previously expected, according to research by Gardiner & Theobald.

The consultancy’s latest tender price index forecasts 3 per cent inflation in the price of work this year across the UK - down from a 5 per cent inflation forecast earlier this year.

The UK average tender price for 2009 and 2010 forecast has reduced by 1.5 percentage points and 1 percentage point respectively, with the 2011 forecast reduced by 1 per cent.

A lack of confidence in the market, reduced workloads and restrictions in funding means the industry will become more price competitive.

Gardiner & Theobald partner Gavin Murgatroyd said: “We have slashed nearly 50 per cent of our growth forecast for the next year. And conditions are deteriorating rather than improving.”

He added: “Some sectors such as commercial and private residential, as well as fit-out work, are probably in negative growth. I would think £100 worth of work for them will be down, costing around £90 this time next year.

“Our evidence is showing tradesmen such as bricklayers having had to take a 30 per cent drop on their daily rates. But that is the reality they face if they want to work.”

The research shows that it is not just general tradesmen who are experiencing cuts in their day rates but also specialist mechanical and electrical trades.

According to the index, public spending continued to feed demand for education, health and infrastructure projects.

But Gardiner & Theobald said public spending could be threatened by the increase in public sector net borrowing, which reached £28.2 billion in August, 70 per cent higher than last year.

The consultants said that while expenditure in these sectors tends to be politically - as well as economically - motivated, 2009 may see a tightening with reduced tax receipts from lower economic output leading to an increase in borrowing that will have to be addressed.

Gardiner & Theobald said energy costs - particularly gas and electricity - have continued to rise this year, but oil prices have remained volatile, which makes it difficult to analyse the affect of demand on pricing.

Aggregates and roadstones are up 7.5 per cent to 10 per cent year on year, while ready mix concrete prices have increased from 6 to 8 per cent.

Structural steelwork prices continue to rise - there has been an increase of over 25 per cent since the start of the year. Meanwhile, landfill tax will increase by £8 per tonne a year until 2010.

Labour rates will begin to stagnate during the last three months of this year and could fall in 2009 as margins are cut.