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Credit crunch effect begins to show
A market forecast compiled by project and cost consultancy Davis Langdon has found that, despite nine months of economic uncertainty, construction prices continued to rise in the first quarter of 2008 by 1 per cent. However, the rate of growth is slowing down with new orders in decline since the middle of 2007.
"Despite a 1 per cent rise in tenders since beginning of 2008," warns Peter Fordham of Davis Langdon, author of the report, "there is evidence of an accelerated slowdown and continued uncertainty about the extent of the UK economic crisis."
The private housing and commercial sectors are feeling the credit crunch most, with housing orders falling away sharply. Halifax reported an average fall of 2.5 per cent in house prices in March and housebuilders have been restricting development in response to this trend.
While large commercial projects in the pipeline will sustain short term growth, with London relatively buoyant, the number of new orders for private commercial work in the last quarter of 2007 fell to the lowest quarterly level since the end of 2005.
Although few projects are being cancelled, developers appear to be ‘reviewing' projects and prelets and advanced sales are becoming a requirement from funders.
The construction industry is likely to turn to the public sector with public capital expenditure already committed on schools, social housing and the Olympics.
Labour basic wage rates will also rise by 6 per cent by the end of June 2008, a big increase on the 3.5 per cent and 4.3 per cent of the last two years. Labour costs have previously been kept down by the huge influx of Eastern European workers but this flow may be reversing as a result of increased wages in Eastern Europe and the weakening value of the pound. Unless the labour flow is replenished, labour cost inflation could return to the UK market.
Posted by Brian Marsh Options Midlands & West Ltd
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