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EXECUTIVE SUMMARY

BCIS
RICS - October 2008
1
M Tender prices remained unchanged in 2nd quarter 2008 compared with the previous quarter but rose by 2.5%
compared with a year earlier.
3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08
Percentage
change on
previous quarter
-1.3% +1.8% +3.0% +0.8% +3.3% +0.4% -1.2% 0
M The General Building Cost Index rose 4.9% in the year to 2nd quarter 2008.
M Materials costs rose 5.5% in the year to 2nd quarter 2008, whilst nationally agreed wage rates rose 4.4%.
M Materials prices are expected to rise at around the level of general inflation over each year of the forecast.
M Wage settlements are expected to be agreed above the rate of inflation during the forecast period.
M New orders for construction fell by 8% in 2nd quarter 2008 compared with the previous quarter and by 20%
compared with the same quarter a year earlier.
M New work output is expected to fall in 2008 and 2009 and then remain unchanged in 2010, as the credit crunch
and slowdown in economic growth hits the construction sector. The sectors to be worst hit over the next couple
of years are private housing and private industrial and commercial. However, the public non housing and
infrastructure sectors are expected to grow over the next three years, assuming that the promised public funding
is forthcoming.
M The Construction Confederation report that the degree of difficulty in securing skilled labour as a whole fell
in 2nd quarter 2008 compared with the previous quarter. The difficulty in recruiting bricklayers, carpenters
and plasterers also eased, with bricklayers being the most difficult to secure.
M Tender prices are expected to fall over each of the next two years on the back of falling new work output in
2008 and 2009. However, strong input cost pressures over the next few quarters may limit the fall in tender
prices during this period.
Summary of Forecasts
Annual % change 3Q06
to
3Q07
3Q07
to
3Q08
3Q08
to
3Q09
3Q09
to
3Q10
Tender Prices +9.2% -1.2% -2.8% -0.8%
Building Costs +4.7% +6.7% +3.1% +3.7%
Nationally Agreed Wage Awards +4.4% +4.6% +4.6% +4.7%
Materials Prices +5.2% +7.2% +2.5% +2.5%
Retail Prices +4.3% +4.5% +3.0% +2.1%
Construction New Work Output* +4.2% -2.0% -3.0% 0
* Year on year (ie 3Q06 to 3Q07 = 2006 to 2007)
BRIEFING
BCIS
RICS - October 2008
22
Figure A. Cost Trends
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
90
140
190
240
290
BCIS All-in TPI
BCIS GBCI
Forecast Actual
Base Index 1985 = 100
Figure B. Activity Indicators
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8
5
6
7
8
9
10
11
12
Constant 2000 Prices Seasonally adjusted (BN)
ONS Value of New Work Output
ONS Value of Orders for New Work
Figure C. Market Conditions Index
8586878889909192939495969798990001020304050607080910
60
70
80
90
100
110
120
Actual Forecast
Market Conditions Index = TPI x 100
GBCI
BUILDING COST TRENDS
BRIEFING
BCIS
RICS - October 2008
33
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
0
5
10
15
20
-5
-10
-15
TPI Annual % Change
RPI Annual % Change
Source:BCIS,ONS
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
90
140
190
240
Southern & Eastern
Rest of UK
Source: BCIS
1.0 LATEST TRENDS
1.1 Indices: 2nd Quarter 2008 (provisional)
Tender prices remained unchanged in 2nd quarter
2008 compared with the previous quarter, but rose by
2.5% compared with the same quarter a year earlier.
In the year to 2nd quarter 2008, retail prices inflation
rose by 4.1%. One of the key drivers of tender prices,
new work output, fell by 3% in 2nd quarter 2008
compared with the previous quarter, and by 1%
compared with a year earlier. Furthermore, contractors
are expecting workload to decline in 3rd quarter 2008
and new work output is forecast to decline by 2.0% in
2008 as a whole and by 3.0% in 2009. This would
suggest that at the very best tender prices will remain
unchanged next quarter, despite quite strong input
cost increases, but are probably more likely to fall.
Figure D. Tender Price Inflation
(Year on Year Percentage Change)
The BCIS General Building Cost Index rose by 1.5%
in 2nd quarter 2008 compared with the previous
quarter, and by 4.9% compared with a year earlier.
The Market Conditions Index fell in 2nd quarter 2008.
1.2 Indices: 1st Quarter 2008 (revisited)
Based on an improved sample size, the BCIS All-in
Tender Price Index for 1st quarter 2008 has been
revised upwards to 247 from 244, the figure published
in July 2008. The year on year increase in 1st quarter
2008 currently stands at 3.3%.
In the BCIS Rest of the UK Sample, the 1st quarter
2008 index remains unchanged at 254, and now
represents an 8.1% annual increase. In the BCIS
Southern and Eastern Sample, the 1st quarter 2008
index now stands at 226, up from the July 2008 figure
of 222, equating to a 6.6% fall in tender prices.
However, the sample size remains very small.
The 1st quarter 2008 index for the BCIS Private Sector
Tender Price Index has been revised downwards to 243
from 248, the annual change in prices standing at a fall
of 2.8%. The sample size remains small. In the BCIS
Public Sector Tender Price Index the 1st quarter 2008
index has been revised upwards to 240 from 235, with
tender prices having risen by 7.1% compared with a
year earlier.
Figure E. Broad Regional Trends
Table 1. Regional Price Trends
Region Percentage Change
1Q08 1Q07 4Q07 - 4Q06
Scotland
Northern
North West
Yorkshire and
Humberside
East Midlands
West Midlands
East Anglia
South East
London
South West
Wales
+8.7%
+6.0%
+3.5%
+5.7%
+5.9%
+3.4%
+4.5%
+7.7%
+9.2%
+6.7%
+7.7%
+9.3%
+6.5%
+5.4%
+6.2%
+6.8%
+8.3%
+8.4%
+7.9%
+7.8%
+6.8%
+8.3%
Source: BCIS
The rate of annual percentage change in regional tender
prices fell in all regions in 1st quarter 2008, except in
London where the rate rose.
BRIEFING
BCIS
RICS - October 2008
44
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
80
90
100
110
120
130
140
150
Material & Fuel Costs
Output Prices
RPI
Unit Wages
Source: ONS
Source: ONS, BERR
80 82 84 86 88 90 92 94 96 98 00 02 04 06
0
5
10
15
-5
-10
-15
GDP - Annual % change
Total Construction Output - Annual % change
The majority of trade prices rose in the year to 1st
quarter 2008, with drainage, insitu concrete, metal
roofing and paths having double digit increases. Some
trades had falling prices over this period including
demolitions, sheet roofing and tile roofing which had
double digit falls.
2.0 ECONOMIC BACKGROUND
2.1 Inflation
The annual rate of inflation as measured by the retail
prices index (RPI) fell to 4.8% in August 2008 from
5.0% in the previous month. The Consumer Prices
Index (CPI), which is the Governments measure of
inflation, rose to 4.7% in August 2008 from 4.4% in
July 2008. The CPI is currently well above the target
level of 2.0% set by the Government.
Manufacturing input costs continued to rise sharply in
the year to August 2008, rising by 16.4%. Over the
same period, manufacturing output prices (excluding
food, beverages, petroleum and tobacco) rose by
6.4%, which would suggest that the full impact of
input cost increases are not being fully passed on in
prices.
Unit wages costs rose by 1.9% in the year to July
2008.
Figure F. Manufacturing Prices and Costs
According to the Treasury, the average of independent
forecasts shows retail prices inflation falling slightly
to 4.6% by the end of 2008, falling further to 2.3% by
the end of 2009.
Table 2. Inflation Forecast
Forecast Date of
Forecast
RPI Inflation %
Year to Q4
2008 2009
Av Independents 39667 4.6% 2.3%
Source: Treasury
2.2 Growth
The annual rate of growth, as measured by the change
in Gross Domestic Product (GDP), fell in 2nd quarter
2008 to 1.7% from 2.4% in the previous quarter.
Figure G. Gross Domestic Product (GDP)
and Total Construction Output
- Annual Percentage Change
In the past there has been a reasonably close
relationship between the annual percentage change in
GDP and the annual percentage change in total
construction output. The annual percentage change in
GDP rose to 3.0% in 2007 from 2.9% in 2006. Over
the same period, total construction output rose to 2.6%
from 1.1%. It is anticipated that GDP growth will slow
to well below long term trend in 2008 and 2009,
suggesting that total construction output growth should
slow over this period. According to the forecast
prepared by the Construction Products Association
(CPA), total construction output will fall in 2008 and
2009 (Table 12).
BRIEFING
BCIS
RICS - October 2008
55
The Treasury report that the average of independent
forecasts show growth slowing to 1.4% in 2008,
slowing further to 0.9% in 2009. In the medium term,
the rate of growth is expected to accelerate, with the
average of independent forecasts showing increases of
2.2% in 2010, and 2.6% in 2011 and 2012.
Table 3. GDP Forecasts
Forecast Date of
Forecast
GDP %
Year on Year
2008 2009
Treasury 3/08 1.8 - 2.3% 2.3 - 2.8%
Av
Independents 8/08 1.4% 0.9%
Source: Treasury
Fixed investment, which includes new construction,
fell by 5.3% in 2nd quarter 2008 compared with 1st
quarter 2008, and by 2.1% compared with the same
quarter in 2007.
According to the Treasury, the average of
independent forecasts for fixed investment shows it
rising by just 0.3%in 2008, but falling by 0.7% in
2009.
Table 4. Fixed Investment
Forecast Date of
Forecast
Fixed Investment %
Year on Year
2008 2009
Treasury 3/08 1.8 - 2.3% 2.8 - 3.3%
Av
Independents 8/08 0.3% -0.7%
Source: Treasury
2.3 Interest Rates
The Bank of Englands Monetary Policy Committee
decided to keep interest rates unchanged at its
September 2008 meeting; rates remaining at 5.0%.
Interest rates last changed in April 2008, when they
were reduced by 0.25%.
The Treasury report that the average of independent
forecasts shows rates remaining unchanged at 5.0% at
the end of 2008 and falling to 4.25% by the end of
2009. The medium term forecast shows rates rising in
2010 to 4.75%, rising further to 5.0% in 2011 and
staying there in 2012.
3.0 MATERIALS
3.1 Demand and Supply
According to the Builders Merchants Federation, sales
rose by 5.7% in 2nd quarter 2008 compared with the
previous quarter, but fell by 6.8% compared with a
year earlier. In the year to 2nd quarter 2008, all regions
had falling sales.
3.2 Prices
Materials prices rose sharply in 2nd quarter 2008
compared with the previous quarter, rising by 3.1%.
Materials prices also rose by 5.5% compared with 2nd
quarter 2007. Retail prices inflation rose by 4.1% in the
year to 2nd quarter 2008.
There have been some notable rises in some materials
prices between 2nd quarter 2007 and 2nd quarter 2008
including steelwork and lead. The BERR Formula
Fluctuations Index for Steelwork Materials rose by
10.1% in the year to 2nd quarter 2008. Corus have also
announced that there is to be a further increase in the
cost of steel sections amounting to 60 per tonne from
the end of September 2008. The British Steelwork
Association believe that this will be the last increase of
2008.
Disaggregating the materials costs from the BERR
Formula Fluctuations Index for Leadwork shows that
lead rose by 45% in 2nd quarter 2008 compared with
the same quarter a year earlier. The index also suggests
that the cost of lead will fall by around 6% in the year
to 3rd quarter 2008. Figures from the London Metal
Exchange shows lead rising by just 6% in between 2nd
quarter 2007 and 2nd quarter 2008 However, it showed
an annual increase of 62% in 1st quarter 2008, which
is probably what has been picked up in the BERR
Leadwork Index in 2nd quarter 2008.
Other materials that had significant increases in the
year to 2nd quarter include sand and gravel, up by 7%,
crushed rock, up by 14%, coated roadstone, up by 14%
and cement, up by 11%.
The price of crude oil rose by over 80% in 2nd quarter
2008 compared with a year earlier. The BERR Formula
Fluctuations Index for Gas Oil Fuel also shows a large
increase of 73.2% over the same period. In August
2008, world crude oil prices were around $115 a barrel
down from a peak of around $135 a barrel in July
2008. Oil prices still remain historically high as shown
in Figure I. Although oil prices have been falling
recently, the annual increase in prices is expected to
remain high in the short term.
BRIEFING
BCIS
RICS - October 2008
66
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
50
100
150
200
Materials
RPI
Source: BCIS, NS
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20
40
60
80
100
120
140
Source: USEIA
Materials prices are expected to rise well ahead of
general inflation over the next few quarters, with
strong demand continuing from developing countries
and with oil prices significantly above a year earlier.
The market is expected to settle down by the second
half of 2009, with materials prices rising at around the
level of general inflation over each year of the
forecast.
Figure H. World Crude Oil Prices
(Monthly Average Price Per Barrel)
Figure I. Construction, Materials
and Retail Prices
Table 5. BCIS Forecast of Materials Prices
Period Forecast
3Q08 to 3Q09 2.5%
3Q09 to 3Q10 2.5%
Source: BCIS
4.0 LABOUR
4.1 Demand
The Office for National Statistics (ONS) are currently
undergoing a review of employment statistics, so the
normal source of our information on construction
employment is currently not available. However, ONS
have published data on total construction employment
which remained unchanged in 2nd quarter compared
with the previous quarter, but fell by 1% compared
with a year earlier.
The Construction Confederation (CC) report that 24%
of firms were experiencing difficulties in recruiting
skilled labour in 2nd quarter 2008, down from 33% in
1st quarter 2008. The difficulty in recruiting
bricklayers fell to 29% from 33%, for plasterers to 26%
from 49% and for carpenters to 26% from 36%.
Table 6. Percentage of Firms Reporting
Difficulties in Securing Skilled Labour
Quarter Bricklayers Carpenters Plasterers
2006 i 53% 50% 68%
ii 39% 42% 49%
iii 43% 36% 54%
iv 43% 48% 51%
2007 i 59% 56% 76%
ii 54% 47% 61%
iii 56% 44% 52%
iv 26% 26% 56%
2008 i 33% 36% 49%
ii 29% 26% 26%
Source: CC
BRIEFING
BCIS
RICS - October 2008
77
Source: CC
04 05 06 07 08
0
20
40
60
80
100
All Trades %
4.2 Earnings, Wages and Rates
Average earnings in the whole economy in 2nd
quarter 2008 rose faster than those in the construction
industry, rising by 3.7% compared with 2.8%.
Figure J. Overall Difficulty in
Securing Skilled Labour
Operatives in the heating and ventilating industry will
receive a 4.0% increase in wages from 6 October
2008, the final part of a three year wage award.
Table 7. Construction Industry Wage Awards
Operative
Date
Trade Award
01/01/08
01/01/08
07/01/08
07/01/08
07/01/08
28/01/08
02/06/08
09/06/08
23/06/08
30/06/08
30/06/08
20/07/08
04/08/08
06/10/08
Thermal Insulation Industry
Flat Glass Industry
Plumbers- England
Electricians - England
Electricians - Scotland
Steelworkers
Plumbers - Scotland
Builders (BATJIC)
Asphalters
Builders (CIJC)
Civils (CIJC)
Demolition
Builders Northern Ireland
Heating and Ventilating
7.0%
3.5%
4.5%
4.0%
4.0%
4.9%
4.6%
3.8%
4.7%
6.0%
6.0%
4.2%
6.0%
4.0%
Source: BCIS
The average of wage awards is likely to rise
considerably faster than general inflation over the
forecast period.
Table 8. BCIS Forecast of Wage Settlements
Period Forecast
3Q08 to 3Q09 4.6%
3Q09 to 3Q10 4.7%
Source: BCIS
5.0 MARKET CONDITIONS
5.1 Output
According to the Department for Business Enterprise
and Regulatory Reform (BERR), the total volume of
construction output in Great Britain fell by 1% in 2nd
quarter 2008 compared with the previous quarter but
rose by 2% compared with a year earlier. Total new
work output fell by 3% in 2nd quarter 2008 compared
with 1st quarter 2008 and by 1% compared with the
same quarter in 2007.
A comparison of new work output in 2nd quarter 2008
with the previous quarter shows that the majority of
sectors had falling output. Output in the public housing
sector fell by 2%, in the private housing sector by 7%,
in the private industrial sector by 14% and in the
private commercial sector by 4%. The infrastructure
and public non housing sectors grew by 7% and 5%
respectively.
Analysis of new work output in 2nd quarter 2008
compared with 2nd quarter 2007 shows that output fell
in the public housing, private housing, and private
industrial sectors, with double digit falls in the latter
two sectors. Output rose by 21% in the infrastructure
sector, by 15% in the public non housing sector and by
3% in the private commercial sector.
BRIEFING
BCIS
RICS - October 2008
88
Source: BERR
Public Housing
Private Housing
Infrastructure
Public Other
Private Industrial
Private Commercial
Public Housing R&M
Private Housing R&M
Other Public R&M
Other Private R&M
0 10 20 30 -10 -20 -30
Annual Percentage Change
Table 9. Construction Output (constant prices
seasonally adjusted)
Sector % change 2Q08 compared with
1Q08 2Q07
NEW WORK:
Housing
Public
Private
Infrastructure
Other new work
Public
Private
Industrial
Commercial
-2%
-7%
+7%
+5%
-14%
-4%
-7%
-17%
+21%
+15%
-21%
+3%
Total New Work -3% -1%
REPAIR AND
MAINTENANCE
Housing
Public
Private
Non-Housing
Public
Private
+6%
+10%
-12%
+1%
+11%
+8%
+1%
+5%
Total Repair and
Maintenance +2% +6%
Total All Work -1% +2%
Source:BERR
Figure K. Construction Output
Annual Percentage Change 2nd Quarter 2008
(Constant 2000 Prices, Seasonally Adjusted)
5.2 Orders
The total volume of construction orders in Great
Britain fell by 8% in 2nd quarter 2008 compared with
the previous quarter and by 20% compared with the
same quarter a year earlier.
Comparing 2nd quarter 2008 with 1st quarter 2008
shows that orders fell in most sectors, with double digit
falls in the private housing, infrastructure and private
industrial sectors, falling by 13%, 14% and 27%
respectively. Orders rose by 20% in the public housing
sector and by 4% in the public non housing sector.
A comparison of 2nd quarter 2008 with the same
quarter in 2007 shows that the majority of sectors had
falling orders with particularly large falls in the private
housing, private industrial and private commercial
sectors, all having falls in excess of 30%. Only the
infrastructure and public non housing sectors had
increased orders, rising by 30% and 15% respectively.
Table 10. New Orders for Construction (constant
prices seasonally adjusted)
Sector
% change 2Q08
compared with
1Q08 2Q07
Housing
Public
Private
Infrastructure
Other New Work
Public
Private
Industrial
Commercial
+20%
-13%
-14%
+4%
-27%
-8%
-11%
-37%
+30%
+15%
-39%
-33%
Total New Work -8% -20%
Source: BERR
According to the BCIS econometric model, which is
based on the Joseph Rowntree Foundation Model,
orders are expected to fall significantly in 2008 and
slightly in 2009, returning to strong growth in 2010.
BRIEFING
BCIS
RICS - October 2008
99
Table 11. Construction Orders Forecast - Joseph
Rowntree Foundation Housing and Construction
Model
Year on Year Forecast
2008 -14.6%
2009 -1.0%
2010 + 12.5%
Source: JR (9/08)
5.3 Housing
According to the Department for Communities and
Local Government, housing starts in Great Britain fell
by 6.8% in 4th quarter 2007 compared with the
previous quarter and by 5.5% compared with 4th
quarter 2006. Over the same comparison periods,
housing completions rose by 22.9% and by 12.0%
respectively.
The Nationwide Building Society report that house
prices fell by 1.5% in August 2008 compared with the
previous month and by 8.1% compared with a year
earlier. The main reason for the drop off in demand,
according to house builders, is the lack of confidence
in the market but changes in lending criteria are also
seen as an issue. The Nationwide expect the next
move in interest rates to be downward, but they are
sceptical about the extent to which this will revive the
mortgage and housing market while overall
confidence in the economic and housing market
conditions remains low.
According to the Halifax Bank of Scotland (HBOS),
house prices fell by 1.8% in August 2008 compared
with July 2008 and by 10.9% compared with August
2007. HBOS believe that a solid employment market
and low interest rates underpin the housing market.
However, they also believe that the fall off in housing
demand is due to a squeeze on discretionary income,
the high level of average house prices in relation to
earnings, and the increased difficulty in obtaining
credit. HBOS expect conditions in the housing market
to remain challenging, although the recent
announcement that the initial stamp duty threshold
will be temporarily raised from 125, 000 to 175,000
should reduce the stamp duty burden on a significant
number of homebuyers.
5.4 State of Trade
The surveys prepared by the Construction
Confederation (CC), Federation of Master Builders
(FMB), the Construction Forecasting and Research
(CFR) and the Chartered Institute of Purchasing and
Supply (CIPS)/ Markit , all show contractors
workload falling in 2nd quarter 2008. The CC and
FMB both report that contractors were expecting
workload to fall in 3rd quarter 2008.
The CC survey shows enquiries falling in 2nd quarter
2008. The FMB survey no longer gives an overall view
on enquiries but its survey showed that enquiries fell in
every sector in 2nd quarter 2008.
5.5 Output Forecasts
The Construction Products Association (CPA) revised
their forecast of total construction output in October
2008. The revised forecast shows total construction
output falling by 1.8% in 2008, falling further in 2009
by 4.6% and then remaining virtually unchanged in
2010 with a fall of 0.3%. Previously, CPA were
forecasting a fall of 1.3% in 2008, a fall of 1.6% in
2009 and then rising by 0.7% in 2010.
The CPA forecast of new work output now shows new
work output falling by 3.6% in 2008, by 5.6% in 2009,
recovering to a small increase of 0.2% in 2010. CPAs
previous forecast was for a 1.8% fall in 2008, a 0.7%
fall in 2009, returning to a rise of 1.7% in 2010.
The public non housing sector is one of the two new
work sectors that CPA expect to grow over the next
three years. Strong growth is expected in 2008 and
2009, with growth slowing somewhat in 2010. The
growth is expected to be supported by the education
sub sector, through the Building Schools for the Future
programme, together with the Primary Capital
Programme and Building Colleges for the Future
programme. Health related projects are also expected
to boost growth due to the provision of new hospitals
and GP clinics. 2012 Olympics related work should
also add a welcome boost to growth.
The other sector expected to have year on year growth
over the next three years is the infrastructure sector. It
is anticipated that growth will be supported by the rail
sub sector, through projects such as Thameslink, line
extensions, station refurbishments and Crossrail from
2010. With an 8% increase in investment in the current
five year capital expenditure plan (2005 - 2010)
compared with the previous plan, the water and
sewerage sub sector is set to boost growth in 2008 and
2009 in particular. The sector is also expected to
benefit from flood defences and harbour work.
According to CPA, output in the public housing sector
is likely to fall in 2008, recovering to a modest rise in
2009, before rising more strongly in 2010. CPA now
believe that the government target for new
housebuilding is unlikely to be met in the near future,
constrained by the decline in the private house building
sector.
BRIEFING
BCIS
RICS - October 2008
10 10
The CPA expect output in the private housebuilding
sector to decline dramatically in 2008, falling by 28%,
followed by a further fall of 14% in 2009, with a
return to strong growth of 12% in 2010. The credit
crunch is the root cause of the anticipated significant
decline in 2008 and 2009, which has led to a
tightening in credit availability for potential house
buyers. Also, the economy is currently suffering from
the global economic slowdown, and consumers are
being hit by rising fuel and food prices.
The CPA anticipate that construction output in the
private industrial sector will go into recession in 2008,
and remain there over the following two years.
Following significant investment in this sector over
recent years, CPA believe that there is little scope for
increased growth over the coming years, particularly
with the current economic slowdown. Furthermore,
manufacturers are having to absorb sharply increasing
input costs rather than passing them on in output
prices, hence reducing profit margins.
In the private commercial sector, CPA expect output
to grow in 2008, but decline significantly in 2009 and
2010. Work already on site is expected to support
growth in 2008. Although growth in PFI work for
education and health schemes is likely during the next
three years, it is unlikely to offset the falls in output in
the offices, entertainment and retail sub sectors which
have all been hit by the economic slowdown.
Table 12. Construction Output Forecast - Construction
Products Association
Sector Percentage Change
2008
Forecast
2009
Forecast
2010
Forecast
Public Housing

Private Housing

Infrastructure
Public Non-Housing

Private Industrial
Private Commercial

-7.0%
-28.0%
+21.6%
+13.7%
-21.7%
+3.4%
+2.0%
-14.0%
+8.4%
+7.4%
-10.0%
-12.7%
+8.0%
+12.0%
+2.0%
+4.2%
-5.9%
-8.6%
Total New Work
Repair &
Maintenance
-3.6%
+0.5%
-5.6%
-3.5%
+0.2%
-0.9%
Total

-1.8% -4.6% -0.3%
Source: CPA (10/08)
The JR model shows that output is expected to fall
significantly over the next two years, returning to
above trend growth in 2010.The model also shows that
total construction output is expected to rise a little in
2008, fall in 2009 and return to above trend growth in
2010.
BRIEFING
BCIS
RICS - October 2008
11 11
Table 13. Construction Output Forecast - Joseph
Rowntree Foundation Housing and Construction
Model
Year on
Year
Forecast
Total New
Work Output
Total
Output
2008
2009
2010
- 4.2%
- 9.2%
+ 3.8%
+ 0.4%
- 3.3%
+2.9%
Source: JR(9/08)
The BCIS forecast of new work output shows it
falling in 2008 and 2009, and then remaining
unchanged in 2010. The credit crunch and the
slowdown in economic growth are expected to
impinge on construction output over the next few
years, with the private housing and the private
commercial and industrial sectors being hit the
hardest. However, the public non housing and
infrastructure sectors are expected to grow over the
next three years, assuming that the promised public
funding is forthcoming. The BCIS forecast of new
work output is not dissimilar to that of the JR Model
in 2008 and 2009 in that they both expect falling
output. However, the JR Model shows a greater
decline in 2008 and 2009. The BCIS forecast differs
from the JR Model in 2010 forecasting no change
compared with the JR Models above trend growth,
but the JR Model is coming off a predicted much
larger fall in 2009.
Table 14. New Work Output Assumptions
Year on Year Forecast
2008
2009
2010
-2.0%
-3.0%
0
Source: BCIS
6.0 TENDER LEVELS
6.1 Capacity
The Construction Confederation report that contractors
capacity utilisation fell in 2nd quarter 2008, with those
working at full/almost full capacity falling to 44% from
54%.
Table 15. Contractors Capacity Utilisation
Period % of firms operating at:
Full/almost
full
2005 i
ii
iii
iv
2006 i
ii
iii
iv
2007 i

ii

iii

iv
2008 i
ii
61
54
57
56
49
66
51
66
53
63
79
65
54
44
Source: CC
6.2 Preliminaries and Profit
6.2.1 Preliminaries
According to the BCIS Study of Contract Percentages,
the average level of preliminaries as a percentage of the
remainder of the contract sum (excluding
contingencies) rose slightly in 2nd quarter 2008 to
15.9% from 15.7% in the previous quarter.
BRIEFING
BCIS
RICS - October 2008
12 12
Table 16. Preliminary Percentages
Period Prelims% Sample Size
2007 i 15.2 135
ii 16.3 93
iii 15.6 94
iv 15.9 72
2008 i 15.7 77
ii 15.9 27
Source:BCIS

6.2.2 Profit
The BCIS study of Contract Percentages show that the
average addition made by contractors to building
labour in daywork in 2nd quarter 2008 remained
virtually unchanged in 2nd quarter 2008 at 77%.
However, the sample size for 2nd quarter 2008 is
quite small.
6.2.3 Tender Expectations
According to the Construction Forecast and Research,
contractors reported in 2nd quarter 2008 that they
expected tender prices to rise next quarter. A recent
BCIS survey of contractors showed that contractors
expected workload to fall in the second half of 2008
and on balance, tender prices were expected to remain
unchanged.
6.3 Tender Price Forecast
It is anticipated that materials prices will rise
significantly faster than general inflation over the next
few quarters, as a result of continuing strong demand
from developing countries and with oil prices
significantly above a year earlier. In the second half of
2009, the market is expected to settle down, with
materials prices expected to rise at around the level of
general inflation over each year of the forecast.
General inflation should remain between 2% and 5%
over the next two years. The average of wage awards
is likely to remain well ahead of general inflation
during the forecast period.
New work output is expected to fall in 2008 and 2009
and then remain unchanged in 2010 as the credit
crunch and slowdown in economic growth hits the
construction sector. The sectors to be worst hit over
the next couple of years are private housing and
private industrial and commercial. However, the
public non housing and infrastructure sectors are
expected to grow over the next three years, assuming
that the promised public funding is forthcoming.
Tender prices are expected to fall over each of the next
two years on the back of falling new work output in
2008 and 2009. However, strong input cost pressures
over the next few quarters may limit the fall in tender
prices during the period.

Table 17. Forecast of Tender Prices
Period Forecast
3Q08 to 3Q09
3Q09 to 3Q10
-2.8%
-0.8%
Source: BCIS
7.0 ASSUMPTIONS
7.1 Inflation
The rate of general inflation will be around 4.1% in
2008, 2.6% in 2009 and 2.5% in 2010.
7.2 Demand
New work output will fall by 2.0% in 2008, 3.0% in
2009 and remain unchanged in 2010.
7.3 Labour
7.3.1 Building Workers: Increases of 4.0% from
June 2009 and 4.5% from June 2010.
7.3.2 Plumbers: Increases of 4.5% from January
2009 and 4.5% from January 2010.
7.3.3 Glaziers: Increases of 3.5% from January
2009 and 3.5% from January 2010.
7.3.4 Electricians: Increases of 4.5% from January
2009 and 5.0% from January 2010.
7.3.5 Heating and Ventilating Operatives: Increases
of 4.0% from October 2008 and 4.0% from
October 2009.
7.3.6 Steelworkers: Increases of 6.6% from January
2009 and 4.5% from January 2010.
7.4 Materials
The annual rate of inflation for materials will be 2.5%
in the year to 3rd quarter 2009 and 2.5% the year after.
8.0 NOTES
The BCIS forecast is a national forecast. Regional
differences in demand will have a consequential effect
on tender prices in different parts of the country. The
BCIS All-in Tender Price Index is constructed using
projects based on traditional procurement routes.
Projects based on contractor led procurement methods
such as design and build and partnering, are not
included. However, the same general market conditions
apply to all types of procurement routes but some will
react more slowly to changes in demand.