Inflation falling but could still add more than £1.5bn to government’s spending bill, Currie & Brown warns

Construction cost inflation in the UK is set to ease this year and could be among the lowest in the western world, according to a report by Currie & Brown.

The price of projects is forecast to dip to between 3% and 3.8%, down from 4.1% last year and from an annual average of 4.6% over the past decade.

But Currie & Brown warned that the slower rate of inflation in the UK could still pose serious challenges to construction firms and the government’s £82bn infrastructure and construction pipeline (NICP) for 2024.

Around £1.56bn could be added to the cost of the NICP, the equivalent of 30 new schools or three new major hospitals unless projects are swiftly managed to minimise costs.

The report looked at the rate of construction cost inflation in 13 international markets, giving estimated growth in costs for the rest of 2024 as of February.

It found inflation of 4% and 6% in Europe, 3% to 6% in the US and 5.5% to 6.5% in Australia.

The sharpest cost increases are expected in Japan, where prices could go up as much as 10% to 20%, while the lowest is expected in China, at 1.8% to 2.3%.

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The consultant’s chief operating officer for the UK and Europe Nick Gray said: “Cost escalation is a significant challenge for the construction industry, but it is also nothing new.

“For the past 10 years we have seen construction costs rise on average by 4.6% per year. As an industry we need to stop firefighting and work with our clients to deal with this long-term trend.”

Shared drivers of inflation across international markets this year include geopolitical disruption in Ukraine and the Middle East, including ongoing disruption to Red Sea trade routes caused by attacks on shipping by Houthi rebels.

>> See also: Red Sea crisis: how worried does construction really need to be?

>> See also: Attacks on Red Sea shipping becoming ‘significant issue’ for construction products, CPA warns

This is expected to be exacerbated by skills and materials shortages and tightening sustainability rules. New biodiversity net gain rules in the UK, which came into force this month, could also drive up costs in the short term.

Currie & Brown said firms should look at new ways of working to keep costs down, including modular construction to reduce material and skills demands, using AI to predict future cost increases and incorporating carbon mitigations earlier in schemes so changes will not be needed later to meet incoming regulations.