Brexit and the impact on construction costs

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Dean Watson, Joint Managing Director, Wakemans

Time will tell how a post-Brexit deal will affect investment decisions and impact UK construction output, but as Article 50 is invoked, national property and construction consultancy Wakemans says rising costs are a particular concern.

Wakemans director Dean Watson says: “Construction prices, rose throughout 2016 and with government indices reporting that input costs for goods bought and sold by UK manufacturers are increasing faster than at any time since 2008, we could see more rises in construction prices.”

Wakemans sees building materials as being another key driver of rising prices. Between the final quarter of 2016 and the first quarter of this year the average cost of building materials rose by 2.5%, which is equivalent to 10% on an annualised basis. Imports will be affected by the weaker pound, with metal prices expected to show the biggest increase.

The devaluation of sterling is already pushing up prices in the wider economy and prolonged currency weakness makes it inevitable that construction costs will rise in accordance with higher rates of inflation.

Meanwhile, further pressure on the supply chain is expected to come from labour rates.  Wages rise annually and are impacted by the ongoing skills shortage. The availability of migrant labour is a key concern, while wage increases in the construction industry would also be fuelled by higher inflation.

The impact of greater economic uncertainty should not be underestimated. Any reduction in construction industry output will very likely fuel demand for tender price adjustments, where prices may remain static, or at least rise more slowly, to maintain a competitive edge.

Dean Watson adds: “Against this backdrop of rising construction costs we believe that in the coming 12 to 18 months it’s more important than ever for builders, developers and owners to stay flexible about project procurement, finance and delivery.

“By guarding against uncertainty becoming a barrier to successful development, we should be well-placed to meet the challenges of the prevailing construction landscape post-Brexit.”