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Output slump puts pressure on input costs

Contractors’ input costs drop 4.9 per cent over the past three months while materials prices fall 5.6 per cent and labour rates by 3.7 per cent

Contractors’ input costs continue their downward trajectory, dropping 4.9 per cent over the past three months, according to the EC Harris/Construction News Contractors’ Input Cost Index.

Materials’ prices have decreased by 5.6 per cent while labour rates have dropped by 3.7 per cent on average.

The slump in industry output and global demand, combined with tumbling commodity prices, has placed a strong downward pressure on input costs.

Despite record price rises and high inflation last summer, average input costs are 0.6 per cent lower overall than in March 2008.

The collapse in world commodity prices, especially oil, has resulted in sharp reductions in items such as steel and rebar. By contrast, housing materials have shown smaller adjustments.

Over the past three months, prices of blocks and bricks have decreased by 1.6 per cent and 0.1 per cent
respectively, while timber has seen a more significant fall of 5 per cent; and concrete has increased by 0.3
per cent.

Meanwhile, imported goods have become increasingly expensive due to the weak pound. On average, 25 per cent of building materials and components are imported, mostly from the Eurozone. Key items, such as European curtain walling, have become significantly more costly over the past six months, as sterling has approached near parity with the Euro. However, the pound is forecast to recover to about €1.20 by year end.

The regional variation in materials’ costs is considerable - London contractors add nearly 14 per cent to the national average, while those in Northern Ireland pay 15 per cent below the UK average.

This regional disparity is just as marked in labour rates, where London and the South-east pay labour rates 10 per cent higher than the UK average, with a daily rate of £174, compared to just £106 in Northern Ireland.

More than half of small and medium-sized firms made redundancies in the last quarter of 2008 with further cuts expected in 2009.

Wages for carpenters and bricklayers dropped by 3 per cent and 4.3 per cent respectively over the past quarter; labour average is now 2.6 per cent lower than a year ago.

Building and civil engineering operatives will be expecting a pay increase in June, but negotiations
will be difficult in the current climate.

Juliet Spackman is senior cost researcher at EC Harris

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