Construction input costs will rise by 3-4 per cent annually over the next five years, according to forecasts from the Building Cost Information Service.
Growth in overall input costs will be driven by tender price rises of 5-6 per cent annually to 2020, while materials and wage increases will be around the 3-4 per cent mark.
The latest BCIS data shows that tender prices increased 1.1 per cent in Q2 2015 compared with the previous quarter, and by 4.7 per cent compared with the same quarter a year earlier.
Tender prices are expected to continue to rise over the next six months, albeit at a slower annual rate than previously recorded.
BCIS head of forecasting Peter Rumble said tender prices were “forecast to rise by 5.5 per cent in the year to Q3 2016”, with an expected average annual growth rate of “between 5 per cent and 6 per cent” over the five-year forecast period.
Materials prices, however, fell by 0.4 per cent in Q2 2015 compared with Q1 and by 0.8 per cent compared with the same quarter of 2014.
This supports data from the Department for Business, Innovation and Skills, which suggested that in September 2015, materials cost inflation had slowed to its lowest rate since May 2011.
The fall in materials prices in Q2 was the third consecutive quarterly decline, according to the BCIS, but it is expected that materials costs will rise sharply in the medium term.
BCIS predicts that overall materials prices will rise by 4.6 per cent in the year to Q3 2016.
It is also expected that materials prices will increase by around 4 per cent annually over the next five years.
Wages are also forecast to rise by 3-4 per cent per year over the same period.
“The UK construction industry continues to show signs of growth, and this is reflected in the BCIS forecast which shows strong increases in new work output,” Mr Rumble said.
“While this growth will slow a little over the next four years, it will still maintain momentum with resurgence to a high 5 per cent growth rate in 2020.”