Cost update: December 2003

<B><font size="+2">Hot rates</font></b>
This quarter's edition of Hot rates examines the rates for common key work items across a range of trades instead of concentrating on a single work section.
The rates shown below are averages from successful competitively bid tenders received over the past three months, all associated with medium-sized building projects in the £1-10m total value range.
Typical high, low and mean rates are given for each item. The high rates apply to projects in Outer London or the South-east, the mean rates apply to the Midlands and the low rates may be more likely in northern England or Scotland.
The rates are for "Standard Method of Measurement of Building Works" level items, and are representative of schemes with straightforward access. Rates include overheads and profit but exclude any allowance for preliminaries. Rates can vary considerably within regions and between projects.

<B><font size="+2">Consumer price inflation</font></b>
Consumer prices, as measured by the headline Retail Prices Index, have risen 2.6% over the last year. This is the lowest annual rate of inflation since November 2002. The rate of inflation has slowed markedly over the last six months, prices rising just 0.8% in that time.
Over the last year, the highest rising components have been fares and other travel costs, which have risen 6.8%, and housing, which has risen 6.7%. Under housing, depreciation (up 14%) and council tax and rates (up 12%) have been the driving elements.
The annualised rate of the government's target inflation index, RPIX, excluding mortgage interest payments, is back to 2.7%, just fractionally above the government's target figure of 2.5%. After reaching 3% in February, March and April, Gordon Brown in his April Budget, correctly forecast inflation to have eased back to 2.75% by the fourth quarter this year and predicted inflation will revert to the target of 2.5% next year. Most City and independent forecasters concur with the chancellor's view, though headline retail price inflation is reckoned to be nearer 3%.
Inflation portrayed by RPIY, the index excluding mortgage interest payments and indirect taxes (such as council tax, duties, vehicle excise duty, insurance tax and air passenger duty) and therefore more indicative of true underlying inflation, has also fallen from a peak of 3.2% in March to 2.4%, the lowest figure recorded for exactly a year.
The Harmonised Index of Consumer Prices, the index of inflation calculated by each member state of the European Union for the purposes of European comparisons, and which will become the chancellor's inflation target in December, continues to remain at a lower level (1.4% over the last year and below the EU average of 1.9%) – largely as a result of the exclusion from the index of housing costs.
Of the 15 EU countries, only three currently have lower inflation than the UK – Austria (1.3%), Finland (1.2%) and Germany (1.1%) – whereas the highest figures are recorded in the Irish Republic (3.8%), Greece (3.3% in August), Portugal (3.2%), Italy and Spain (3%).

<B><font size="+2">Price adjustment formulae for construction contracts</font></b>
Price adjustment formulae indices were designed for the calculation of increased costs on fluctuating or variation of price contracts.
Indices are published in a monthly bulletin by The Stationery Office. They also provide useful guidance on cost changes in various trades and industry sectors and on the differential movement of work sections in Spon's Price Books.
Over the past six months, between April and October 2003, the average movement in the 60 building formula work categories has been an increase of 2.7%. The main driving force behind this increase was the wage agreement for building craftsmen and operatives that came into effect at the end of June, lifting basic wage rates 5.1%.
The following table shows those work categories registering the highest increases over this period:
<table border=0 width=320 cellpadding=1 cellspacing=0 bgcolor=#666666><tr><td><table bgcolor=#666666 border=0 width=320 cellpadding=2 cellspacing=1><tr><td valign=top bgcolor=#FFFFFF class=tm4><b> </b></td><td align=center valign=top bgcolor=#FFFFFF class=tm4><b>% change April-October 2003 </b></td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3><b>softwood carcassing and structural members </b></td><td align=center valign=top bgcolor=#CCCCCC class=tm3>+5.3 </td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3><b>filling: imported, hardcore and granular </b></td><td align=center valign=top bgcolor=#FFFFFF class=tm3>+5.1 </td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3><b>cladding and covering: zinc </b></td><td align=center valign=top bgcolor=#CCCCCC class=tm3>+5.0 </td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3><b>cladding and covering: copper </b></td><td align=center valign=top bgcolor=#FFFFFF class=tm3>+4.7 </td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3><b>finishes: painting and decorating </b></td><td align=center valign=top bgcolor=#CCCCCC class=tm3>+4.7 </td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3><b>boards, fittings and trims: Softwood </b></td><td align=center valign=top bgcolor=#FFFFFF class=tm3>+4.6 </td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3><b>demolitions </b></td><td align=center valign=top bgcolor=#CCCCCC class=tm3>+4.3 </td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3><b>concrete: formwork </b></td><td align=center valign=top bgcolor=#FFFFFF class=tm3>+4.2 </td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3><b>finishes: plaster </b></td><td align=center valign=top bgcolor=#CCCCCC class=tm3>+4.1 </td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3><b>pavings: coated macadam and asphalt </b></td><td align=center valign=top bgcolor=#FFFFFF class=tm3>+4.0</td></tr> </table></td></tr></table>
These work categories tend to be trades with a high labour content such as demolitions or painting and decorating; work categories with a significant use of timber (carcassing, boards and trims and formwork) or coated roadstone (where materials price increases have been identified, on page 63); or work categories with sheet metal (zinc and copper). The latter reflect the continuing rise of base metal prices. On the London Metal Exchange, cash prices for lead rose 34% between April and October, copper 21% and zinc 19%. Over the last year, lead prices have risen 41% and copper 29%.
Two work categories – spun and cast iron pipes and aluminium pipes – have shown a slight fall over this period and three further categories no change. These are work categories associated with plumbing work. Plumbers wage rates do not change until January 2004.
<table border=0 width=300 cellpadding=1 cellspacing=0 bgcolor=#666666><tr><td><table bgcolor=#666666 border=0 width=298 cellpadding=2 cellspacing=1><tr><td valign=top bgcolor=#FFFFFF class=tm3>pipes and accessories: aluminium</td><td valign=top bgcolor=#FFFFFF class=tm3>–0.8 </td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3>pipes and accessories: spun and cast iron</td><td valign=top bgcolor=#CCCCCC class=tm3>–0.6</td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3>sanitary appliances</td><td valign=top bgcolor=#FFFFFF class=tm3>0 </td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3>pipes and accessories: steel</td><td valign=top bgcolor=#CCCCCC class=tm3>0 </td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3>pipes and accessories: plastic</td><td valign=top bgcolor=#FFFFFF class=tm3>0 </td></tr> </table></td></tr></table>
<B><font size="+2">Input costs and output prices</font></b>
The input price index for materials and fuel purchased by manufacturing industry rose 1.8% over the year to October, including a 0.8% rise in October alone. This last sharp rise was due to an 8.4% rise in crude oil prices in the month. However, over the year, crude oil prices have only risen 1.8% and the principal upward influence on the input price index was 'home food materials' which have risen 12.2% over the year.
Fuel costs have fallen 2.6% over the year. Fuel costs fell 13.7% in the 10 months between December 2002 and August 2003 but have begun their seasonal recovery in the past two months, rising 2.2%. Electricity prices are currently 1% higher than a year ago but gas prices remain almost 10% lower.
The cost of materials and fuels purchased by manufacturing industries excluding food, beverages, tobacco and petroleum industries show an increase of 0.4% over the year but have been very little changed over the past 15 months. They are 8% lower than in October 2000, suggesting a continuing benign manufacturing climate.
Imported material prices generally are currently 1.1% lower than a year ago but imported metals are 5.1% higher in price. Imported wood and wood products are 2.9% higher.
However, output prices of manufactured products have risen 1.4% over the past year, although only 0.2% in the past six months. Excluding food, beverages, tobacco and petroleum products, the rise in output prices has been very similar, although their input costs have provided slightly less inflationary pressure.

<B><font size="+2">Construction materials</font></b>
The Office for National Statistics no longer publishes indices for prices of construction materials and housebuilding materials in its input prices data series. However, data for construction and housebuilding materials prices continues to be compiled and published by the Department of Trade and Industry in its Monthly Statistics of Building Materials and Components.
The latest figures (to September 2003) show that construction materials prices have risen 2.9% over the last year with new housebuilding materials rising a slightly lower 2.6%. There has been no upward price movement since May as most manufacturers and suppliers tend to review prices in the first few months of the year.
Heating and ventilating equipment and electrical materials prices remain subdued rising just 0.5% and 0.2% respectively over the past year.
ONS identifies the following specific materials price changes in the six months since April 2003 (the date of compilation of the Spon's series of Price Books):
<table border=0 width=300 cellpadding=1 cellspacing=0 bgcolor=#666666><tr><td><table bgcolor=#666666 border=0 width=298 cellpadding=2 cellspacing=1><tr><td valign=top bgcolor=#FFFFFF class=tm3>Coated roadstone</td><td valign=top bgcolor=#FFFFFF class=tm3>+ 2.2%</td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3>Sawn timber</td><td valign=top bgcolor=#CCCCCC class=tm3>+3.2%</td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3>Timber doors, windows and frames</td><td valign=top bgcolor=#FFFFFF class=tm3>+9.7%</td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3>Plastic sanitaryware</td><td valign=top bgcolor=#CCCCCC class=tm3>+2.8%</td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3>Cement</td><td valign=top bgcolor=#FFFFFF class=tm3>–2.2%</td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3>Ready mixed concrete</td><td valign=top bgcolor=#CCCCCC class=tm3>–5.1%</td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3>Aluminium sheets</td><td valign=top bgcolor=#FFFFFF class=tm3>–2.5%</td></tr> <tr><td valign=top bgcolor=#CCCCCC class=tm3>Copper tube and fittings</td><td valign=top bgcolor=#CCCCCC class=tm3>+4.2%</td></tr> <tr><td valign=top bgcolor=#FFFFFF class=tm3>Kitchen furniture</td><td valign=top bgcolor=#FFFFFF class=tm3>+3.5%</td></tr> </table></td></tr></table>