Mace: surging labour costs set to push up tender prices

Tender prices are set to rise on the back of mounting labour costs, according to the latest industry forecast.

In its quarterly report on the UK construction market, Mace’s consultancy arm said workforce shortages remained a hurdle for the industry, with labour costs rising by 1.6 per cent in the last quarter of 2024 to sit 6.5 per cent higher than a year before.

Construction pay is now rising faster than in all but one other sector and is growing at its second highest rate since coming out of the pandemic.

As a result, Mace updated its national tender price forecast from 3.5 per cent to 4 per cent for 2025, while in London, the forecast rose from 3 per cent to 3.5 per cent.

One positive for contractors last year was the lack of movement in material prices, which had provided welcome relief, it said.

However, stabilising material prices were likely to be outweighed by rising labour and energy costs coupled with looming inflationary pressures, it warned.

While interest rate cuts and the government’s infrastructure and planning reforms were positive steps to stimulate growth, it said these alone would not be enough, with productivity issues and labour shortages remaining significant obstacles.

Oliver North, director of cost and commercial management, Europe, at Mace Consult, said rising vacancies could be partially met with a focus on tackling productivity weaknesses.

“The welcome recent government funding announcement, incorporating £600m to train 60,000 more construction workers, will be crucial in addressing shortages and supporting the industry’s growth also,” he said.

He warned that although growth in construction this year should “comfortably beat” last year’s subdued level, economic and political uncertainties remained.

“While the steps being made when it comes to planning, devolution and funding for the Building Safety Regulator will have a long-term impact, processes need to speed up to boost confidence, help secure pipelines and encourage investment,” he said.

The report also raised concerns over potential unease arising from the presidency of Donald Trump, including its implications for Ukraine and European security.

“Worryingly, the eye-catching start of Donald Trump’s presidency suggests logistical challenges will be at the forefront of procurement teams’ thoughts,” it added.