The latest forecasts from BCIS provide a comprehensive overview of the expected trends in civil engineering tender prices, input costs, and new work infrastructure output from 2Q2024 to 2Q2029. This article delves into these forecasts, highlighting key insights and their implications for the civil engineering sector.
Projected Costs and Tender Prices
According to the BCIS forecast, civil engineering costs are expected to rise by 16% by the end of 2028. Tender prices, which reflect contractors' pricing levels in accepted tenders, are anticipated to increase by 18% over the same period. This trend indicates a growing cost of undertaking civil engineering projects, driven by factors such as labour shortages and material price fluctuations.
Building costs across the broader construction industry are also set to rise, with an overall increase of 15% over the next five years. Meanwhile, tender prices will rise by 19%. This indicates that while contractors are facing higher costs, they are passing these costs onto clients at a higher rate, reflecting the competitive and risk-averse nature of the market.
Dr. David Crosthwaite, Chief Economist at BCIS, explains that while the overall construction sector may experience declines due to high borrowing costs, the civil engineering sector is somewhat insulated due to ongoing infrastructure commitments. He emphasizes the importance of government support and sustained investment in infrastructure as critical levers for economic growth. The figure below summarizes the key forecasts for tender prices, input costs, and new work infrastructure output over the forecast period.
Input Costs: Labour and Materials
The forecast for input costs highlights a complex scenario for civil engineering projects. Labour costs are projected to increase by 17% between 2Q2024 and 2Q2029. This rise is attributed to widespread skills shortages, which have been a persistent issue even before the pandemic. The sector's workforce remains below pre-pandemic levels, exacerbating the challenge of meeting skill requirements for upcoming projects.
Material costs present a mixed picture. The BCIS Civil Engineering Materials Cost Index, which experienced a peak inflation of 30.6% in 2Q2022, is expected to grow more slowly. A slight decline is forecasted in 2Q2024, followed by a gradual increase, resulting in a 14% rise by 2028. Factors influencing material costs include global trade disruptions and geopolitical tensions, which add uncertainty to price stability.
In the broader construction market, material costs have been in negative territory for the past two quarters and are forecasted to drop by 1% in 2Q2024. However, a slight uptick in 1Q2024 suggests that material prices may begin to stabilize and increase modestly over the next five years.
New Work Infrastructure Output
Despite some fluctuations, the forecast for new work infrastructure output is optimistic. Following a modest growth of 0.9% in 2024, output is expected to rise by 11% over the next five years. This growth will be primarily driven by the electricity sub-sector, which is anticipated to see substantial investment and development.
Dr. Crosthwaite notes that infrastructure has maintained high levels of new work output historically, and the defined pipeline of projects should help sustain these levels, assuming the pipeline is realized. The commitment to infrastructure projects, alongside efforts to address skills shortages and decarbonize the built environment, will be crucial for the sector's growth.
The wider construction market, however, is expected to see a decline in overall output by 5.5% in 2024, primarily due to reduced activity in the housing, private commercial, and industrial sectors. Growth is anticipated to return in 2025, with total new work output increasing by 20% by 2Q2029.
The figure below illustrates the trends in civil engineering tender prices, input costs, and new work infrastructure output, providing a clear visual representation of the forecast data.
Conclusion
In conclusion, the BCIS forecast presents a detailed and nuanced outlook for the civil engineering sector over the next five years. While there are challenges, particularly related to labour and material costs, the sector is poised for growth driven by sustained infrastructure investment and strategic government support. Understanding these trends is essential for stakeholders in planning and executing future projects effectively.
Infrastructure investment remains a key area of focus, with government policies likely to influence the trajectory of the sector significantly. The emphasis on new housebuilding and infrastructure as growth levers suggests a continued commitment to civil engineering projects, which will be vital for economic stability and development.