Core Five says tender prices set to ease in second half of this year

London cost consultant Core Five has said tender prices will continue to head north in the first six months of the year before going into reverse in the second half.

The firm is expecting an overall rise of 1.5% this year with tenders jumping 2% in the first three months of the year and by a further 1% in the second quarter.

But prices will fall back 1% in the third quarter and by a further 0.5% in the final three months of the year, meaning the overall rise for this year will be 1.5%.

In its latest quarterly update, the firm’s construction economist Elisa Deffenu said prices would “ease in the second half as demand slackens and energy and other input costs pressures loosen off”.

The firm said mainstream projects, which it defined as being typically £100m or less, would see rises of 1.5% this year while major projects, those over £100m and more complex in nature, would see a jump of 2%. Next year would see hikes of 2% and 2.5% respectively followed by rises of 4% and 4.5% respectively in 2025.

Core Five said falling prices would create a “window of opportunity” for more competitive tendering in the second half of this year and early next but cautioned it might be for a limited period only before inflationary pressures kick in again.

It said developers thinking twice before accessing increasingly expensive finance would put the brakes on some jobs while output was already starting to slow down in the wake of an impending recession.

The consultant also added that materials costs are yet to show signs of easing while labour costs will rise because of a shrinking pool of workers and skills that is able to carry out upcoming work.

Earlier this week, Turner & Townsend stuck with an earlier prediction that tender prices would rise 3.5% this year. Both Gardiner & Theobald and Mace have pared back their predictions in light of the looming recession, forecasting inflation of 2.75% (down from 3%) and 2.5% (from 3.5%) respectively.