Soaring price inflation is more than a mere side-effect of the construction industry’s recovery, it also poses a significant threat to it. The good news is that the worst of this may have passed.
At 4.5 percent for 2022, our forecast rate of UK real estate tender price inflation is a notch down on the 5.5 percent seen in 2021. But things are finely balanced.
The supply chain continues to face significant cost pressures with both materials and labour, and the end of the furlough scheme has contributed to the unwelcome return of the spectre of contractor insolvency.
The construction sector is not alone in facing inflationary pressure, but its leaders are uniquely well-placed to navigate it if they tackle the industry’s perennial Achilles’ heel – poor productivity.
Boosting productivity is an important goal in itself. But as this issue of our UK market intelligence explores, it is also a critical weapon in the fight to tame price inflation.
Economic outlook
Growth in Gross Domestic Product (GDP) has returned swiftly and strongly following the initial effects of the COVID-19 pandemic. However, growth has begun to cool, shifting down a gear from 5.4 percent in Q2 2021 to 1.1 percent in Q3 2021.
This leaves the UK economy nestled 1.5 percent below its pre-pandemic level of output, though the Office for Budgetary Responsibility estimates that by early 2022 economic activity will surpass where it was before the pandemic. Nevertheless, headwinds are in place and there are several risks that could yet derail that forecast.
With strong inflationary pressures on the horizon, and increased market uncertainty, the UK economy’s burgeoning prospects may begin to frost over. The same concerns are apparent in construction which is experiencing fluctuations in output, and this may continue moving forward.
The pandemic is not over yet and investment appetites and confidence levels will be stretched in the face of continued uncertainty. There will be a need to do more with less and to boost industry productivity. Not just to attain good value, but also to stabilise fluctuating output growth and keep rising inflationary pressures in check.
Driving better productivity
Off-site construction technology is rightly seen as a game-changer to boosting productivity. Used right, modular techniques can deliver higher quality projects more quickly, safely and cost-effectively than conventional, on-site construction.
But off-site’s potential is too often squandered by inefficiencies in the way projects are managed. For it to deliver maximum productivity, it needs to be accompanied by a fundamental shift in the mindset of everyone involved in project delivery – from the client down to designers, contractors and the supply chain.
By coupling the transformative power of modular with new, digital-first ways of working, construction has everything to gain; protection from the toxic effects of inflation and a powerful driver of long-term growth and efficiency.
Source: Turner & Townsend
