Stace Outlook Index, May 2021

The Stace Outlook Index brings you the latest updates on the UK economy, the industry and Tender Price Index (TPI) forecasts.

Strong post-pandemic recovery predicted

The Bank of England predicts the UK economy will expand by 7.25%, the fastest growth since official records began, in 2021. Against the backdrop of a smaller-than-expected contraction in Q1’s GDP of 1.5%, the UK economy is set to return to 2019 levels by the end of the year.

This recovery is set to be consumer-led due to the phased easing of the lockdown made possible by the rapid rollout of the Covid-19 vaccine. As companies grow more confident in the economy, it is likely that business investment will also gain momentum.

Policies announced in the March Budget such as the extension of the Coronavirus Job Retention Scheme until September and the introduction of a temporary tax break for plant and machinery spending will also assist economic growth.

71% of employers surveyed by the Chartered Institute of Personnel and Development say that the increase in homeworking has either boosted or has made no difference to productivity. It will be interesting to see whether the Government’s flexible working taskforce’s guidance will translate to a drastically different way of working for our industry.

While the construction industry will benefit from this economic growth, the RICS has warned that materials shortages are the biggest challenge for sector growth this year. Notably, there have been numerous steel price increases since the start of the year and on 10 May, British Steel temporarily closed their orderbook.

The Tender Price Index (TPI) held steady in the first part of this year as we predicted in our last Stace Outlook Index (December 2020). The construction sector has been buoyed by positive projections for the economy’s growth as evidenced by Q1 2021’s 2.6% construction output growth. However, the roadmap out of lockdown restrictions is fragile, as highlighted by the rapid spread of the new variant. This, combined with reduced production, increased demand and Brexit-related pressures is causing disruption to material supply and prices resulting in tender prices remaining inconsistent.

Industry commentators are predicting a range between a -1.0% to 3.4% increase for 2021. Our current analysis of the data has led us to set the Stace LLP TPI all-in average forecast for 2021 at 1.25% for the UK and 1.5% for London.

Reference List

1. Bank of England Monetary Policy Report – May 2021 Available at: https://www.bankofengland.co.uk/monetary-policy-report/2021/may-2021

2. Chartered Institute of Personnel and Development April 2021 More employers reporting increased productivity benefits from homeworking compared to last summer, new CIPD research finds. Available at: https://www.cipd.co.uk/about/media/press/010421homeworking-increased-productivity

3. Building May 2021 RICS the latest to flag worries over materials shortages as workloads hit five-year high Available at: https://www.building.co.uk/news/rics-the-latest-to-flag-worries-over-materials-shortages-as-workloads-hit-five-year-high/5111681.article

4. ONS May 2021 Construction output in Great Britain Available at:  https://www.ons.gov.uk/businessindustryandtrade/constructionindustry/bulletins/constructionoutputingreatbritain/march2021

The information contained in our biannual Stace Outlook Index is for general purposes only. The content provided by Stace LLP always endeavours to be up to date and accurate. Stace LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material. The Tender Price Forecast may be required to change when discussing project specific requirements. The data is obtained from sources including the ONS, Monetary Policy Committee Reports and RICS.