UK market view: Q1 2023

2022 was another difficult one for construction, and once again material price rises were at the forefront of these challenges. In Q2, as a result of the Ukraine crisis, construction material prices rose 10%, comfortably outpacing all the unwelcome quarters in 2021, when material price inflation was also sky high. Nonetheless, by the end of the year, conditions had improved and material prices had started to drop.  

This is significant as, when we discuss tender price inflation, we think about how much prices have changed between the final quarter of one year and the previous year’s final quarter. In last year’s case, we are comparing prices in Q4 2022 with Q4 2021. Based on this timeframe, material prices rose 13.1% over the 12 months. By comparison, between Q4 2021 and Q4 2020, material prices had increased 23.3%.  

Timing, therefore, becomes very important, and when contractors and sub-contractors pass on their costs can make a big difference. Whereas material price inflation has started to come down, the annual pace of growth of regular construction pay increased throughout last year.  

Notwithstanding the aftershock of Covid, construction pay accelerated from 2.2% to 6.1%. While not quite as high as in the services sector, and noticeably lower than consumer price inflation, it is still rising rapidly.  

CPI should still fall this year, but that it rose slightly in February to 10.4% may be a sign that prices prove stickier than hoped for. This, therefore, puts sub-contractors in the unfortunate position of having to juggle several adversities simultaneously.  

For more analysis, download our Q1 market view.