Mace sees tender price cuts in 2020, but UK construction in Brexit 'limbo'

Mace sees tender price cuts in 2020, but UK construction in Brexit 'limbo'
Brexit uncertainty is impacting UK construction.
Published: 19 June 2019 - 12:06 p.m.
UK construction consultancy Mace Group’s said following a minimal output growth of 0.1% in Q1 2019 and a 1.9% decline in new orders during Q4 2018, it was reducing construction tender price projections for 2020 from 2% to 1.5%, adding that the UK construction industry was “in limbo” as a consequence of Brexit, especially since pushing back the date of the UK's exit from the EU to 31 October had done "little to provide" market confidence.

Mace said that the longer this combination of a weaker industry and higher costs persisted, the tougher it would become for firms to effectively manage projects.

How is Brexit impacting UK construction?

In its Tender Cost Update UK Q2 2019 report, Mace said: "Brexit has dominated the news. However, pushing back the date when the UK leaves the EU from 29 March to 31 October does little to provide businesses with the certainty they desire.

"Similarly, the Conservative Party leadership contest and results from the European Elections give even less clarity and show a divided country."

Not only did new order declines in Q4 2018 impact the industry, the UK construction industry's output in new work also "barely grew" in Q1 2019, Mace said.

"We believe next year will prove to be incredibly competitive, and firms wanting to win work will be limited in the amount they can increase prices," its report added.

"Beyond that, and assuming a Brexit deal occurs, we are leaving our forecasts unchanged, as we still expect prices to rise more rapidly. In part, this growth will come from projects that are on hold getting the go-ahead.

"Additionally, contractors and sub-contractors who are currently acting with caution will feel emboldened, with more scope for higher prices."

Brexit is also preventing firms and consumers from "enjoying the low inflation, low interest rate, [and] rising real wages backdrop", the consultancy said, adding that businesses even "chose to stockpile in Q1 2019, providing a particular boost to manufacturing, which grew at its fastest rate since 1988".

"However, with the delay to Brexit, they could now be sitting on excess inventory, while also not knowing whether they will encounter similar problems in October," Mace explained, adding that the Brexit delay would "continue to hinder investment".

Commenting on the findings, Mace’s cost consultancy managing director, Steven Mason, said: “The uncertainty continues to test the resilience of the UK construction market and the economy as a whole.

"In spite of an increasing appetite to secure pipeline work, construction tender prices are being buoyed by continued increases in material input prices.

“As we move into H2 2019, the market’s ability to absorb these higher costs against a background of tightening margins will be limited, and we expect tender prices to continue increasing at a modest rate through 2020.”

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