ºÚ¶´ÉçÇø

01 / Key changes

Percentage change year-on-year (Q2 2016 to Q2 2017)

	%	Direction
ºÚ¶´ÉçÇø cost index	+3.9	â–²
Mechanical cost index	+3.9	â–²
Electrical cost index	+2.5	â–²
Consumer prices index	+2.7	â–²

(Q2 2017 figures are provisional)

ºÚ¶´ÉçÇø cost index
A composite measure of building costs increased over the past 12 months by 3.9% at Q2 2017. Materials cost inflation continues to increase, as do labour rates. Inflation arising from higher imported materials costs still plays a part in the reasoning, but the effect of sterling weakness is working its way through and out of the system for the time being. This may well increase once again, as the pound has fallen against the euro recently. 

Mechanical cost index
The rate of annual change increased to 3.9% at Q2 2017. Both labour and materials components of the index increased, with the latter almost reaching 6% over the period. 

Electrical cost index
The electrical cost index increased by 2.5% over the year. The materials component of the index recorded a 5% change in the 12 months to Q2 2017. 

Consumer prices index
Consumer price inflation maintained a steady rate through the second quarter of 2017. The largest fall was recorded in motor fuel, but this was offset by increases in a range of other domestic goods and services.  

The following chart shows Aecom’s index series since 2005, reflecting cost movements in different sectors of the construction industry and consumer prices.

02 / Price adjustment formulae for construction contracts

Price adjustment formulae indices, compiled by the ºÚ¶´ÉçÇø Cost Information Service (previously by the Department for Business, Innovation and Skills), are designed to calculate increased costs on fluctuating or variation of price contracts. They provide guidance on cost changes in various trades and industry sectors – ie those including labour, plant and materials – and on the differential movement of work sections in Spon’s price books.

The 60 building work categories recorded an average increase of 1.6% on a yearly basis. Higher increases were recorded in the following categories:

Price adjustment formulae

June 2016 – June 2017	% change
Cladding and covering: lead	16.5
Cladding and covering: copper	16.3
Cladding and covering: zinc	14.8
Pipes and accessories: copper	14.0
Windows and doors: steel	11.4
Piling: steel	8.3

The lowest yearly increases were in these groups:

Price adjustment formulae

June 2016 – June 2017	% change
Finishes: screeds	1.5
Concrete: reinforcement	1.3
Finishes: flexible tiles and sheet coverings	1.3
Concrete: in-situ	0.8
Pipes and accessories: clay and concrete	0.6
Finishes: rigid tiles and terrazzo work	0.5

Materials

03 / Summary

• Consumer price inflation increased by 2.6% in July 2017 compared with the same month a year earlier â–²
• Manufacturing input prices increased 6.5% in the year to July 2017 â–²
• Factory gate prices (output prices) rose 3.2% in the year to July 2017 â–²
• Commodity prices in Q2 2017 reversed most of the falls seen at the start of the year â–²
• Construction materials prices continued to increase on an annual basis in Q2 2017 â–²

04 / Key indicators

Construction industry
The All Work materials price index increased by 4.7% in the 12 months to June 2017. Housing-related materials ascended 5% in the same period. Non-housing materials prices also rose, by 4.2% annually. All M&E categories posted significant yearly increases.

Construction materials	% change	June 2016 – June 2017*
New housing	5.0	â–²
Non-housing new work	4.2	â–²
Repair and maintenance	4.7	â–²

 

Mechanical services materials	% change	June 2016 – June 2017*
Housing only	10.2	â–²
Non-housing	5.9	â–²
Electrical services materials	3.7	â–²

 

Materials showing largest cost movement	% change, June 2016 – June 2017
Imported sawn or planed wood	+13.0
Fabricated structural steel	+12.6
Imported plywood	+6.7
Doors and windows: metal	+6.1
Sawn wood	+5.9
Particle board	+4.4
Crushed rock (including levy)	-0.3
Ready-mixed concrete	-0.7
Cement	-1.0
Paint (aqueous)	-2.2

_{Data sources: ONS and BEIS}

_*provisional

UK economy

Consumer prices	% change: July 2016 – July 2017
Consumer Prices Index (CPI)	2.6 â–²

Consumer price inflation rose by 2.6% in the 12 months to July. Consumer price inflation remains higher than overall earnings growth, contributing to falling real wage levels and a squeeze on consumer spending. With increased raw materials costs now passed into the supply chain and out to consumer prices, recent falls in the value of sterling will be watched for renewed effects on input cost inflation. 

 

Industry input costs	% change	July 2016 – July 2017
Materials and fuels purchased by manufacturing industry	6.5	â–²
Materials and fuels purchased by manufacturing industry excluding food, beverages, tobacco and petroleum industries	5.5	â–²

Input costs increased by 6.5% on a yearly basis to July 2017 – a notable slowing in the annual rate of change when compared with change in the preceding months of 2017, decreasing by 13.4% from a peak of 19.9% in January. Further consolation is found in the July figure as it records the slowest rate of annual change since July 2016 at 4.2%, while the monthly movement of 3.5% from June 2017 is the largest downward shift since April 2012. Moderate strengthening of sterling and a fall in crude oil by about 12% over H1 2017 are two reasons there is a slower rate of inflation for materials and fuels inputs.  

 

Industry output costs	% change	July 2016 – July 2017
Output prices of manufactured products	3.2	â–²
Output prices of manufactured products excluding food, beverages, tobacco and petroleum	2.4	â–²

_{Source: ONS}

Factory gate prices increased 3.2% on a yearly basis in July. Falling input costs in recent months have contributed in part to a slower rate of overall output price growth. As recent large rises in input costs have eased a little, output prices have continued to increase steadily, offering some respite for producers in managing the balance between input cost pressure and output prices. However, the rate of change in output price inflation has slowed through 2017.

Metal prices

	% change	July 2016 – July 2017
Aluminium	16.8	â–²
Copper	23.1	â–²
Lead	23.6	â–²
Zinc	27.5	â–²
Nickel	-7.5	â–¼

_{Source:  LME}

Commodity prices mainly continued to make gains through the second quarter of 2017. This follows downward drift in prices through the preceding quarter. Prices are therefore at similar levels to those seen at the turn of the year. Global economic growth expectations are perceived to be improving, with corresponding knock-on effects on demand for metals commodities. 

Exchange rates

	July 2016 average	July 2017 average	% change
GBP / EUR	1.1884	1.1281	-5.1
GBP / USD	1.3141	1.2994	-1.1

Having followed broadly similar trends against the euro and the US dollar, sterling again lost ground against the euro during Q2 2017. It sank further more recently as eurozone economic confidence and performance beat the UK’s economic story,

and the situation is not helped by ongoing Brexit uncertainty weighing on the outlook. Against the US dollar, sterling’s performance is better, but this reflects changing views about the US economic landscape and political developments.

Labour

05 / Labour market statistics

• Average weekly earnings (total pay including bonuses) in construction increased to £586 in June 2017, from £581 a month earlier. Annually, total earnings increased just 2% in June on a single-month basis, and 0.2% annually on a three-month average basis. Regular pay (excluding bonuses and arrears) rose to £564 per week in June, with annual rates of 2.4% on a single-month basis and 1.9% using a three-month average.
• Construction industry regular and total pay rates of change are broadly in line with equivalent changes to average earnings for the whole economy classification.
• Real average weekly earnings for the whole economy fell by 0.4% (regular pay) in June 2017 when compared with June 2016.

06 / Wage agreements

Construction Industry Joint Council

Following negotiations between the parties to CIJC, the council has agreed a two-year agreement on pay and other conditions. This is the second phase of a two-year agreement reached in June 2016. Hourly pay rates will increase by 2.75% in June 2017. Industry sick pay and subsistence allowance will also increase in line with the basic pay rate increases. Workers will receive an extra day’s holiday from 1 January 2017, which is worth an additional 0.4%. For more details on apprentice rates, daily fare and travelling allowance and other rates, refer to CIJC document IR.2016.19.

Joint Council Committee of the Heating, Ventilating and Domestic Engineering Industry

A two-phase agreement has been agreed between BESA and Unite trade unions. Phase one comprises 2.0% and 2.5% increases in hourly wage rate effective from 3 October 2016 and 2 October 2017 respectively. Phase two, covering the periods 2018/2019 and 2019/2020, involves increases in index and other benefits agreed in July 2016. Introduction of calculating daily fare and travel allowances has been changed from kilometres to miles. Workers’ annual holiday is to increase from 23 to 24 days, effective from February 2020. For more information on the agreement, refer to JCC letter 117 of BESA.

The Joint Industry Board for the Electrical Contracting Industry

The electrical contracting industry has agreed on a four-year wage deal, effective from January 2017. There will be hourly wage increases of 2% in 2017, 2.5% in 2018, 2.75% in 2019 and 3% in 2020; also the introduction of a new mileage allowance and rate to replace travel allowance and travel time. Annual holidays are to increase to 23 days in 2019 and 24 days in 2020. For more information on the agreement, refer to the electricals’ and Unite wage agreement document – July 2016.

ºÚ¶´ÉçÇø and Allied Trades Joint Industry Council

As the second part of a two-year agreement reached in 2016, this year will see a further 2.5% pay rise in all wage rates. Changes to employer pension contribution mean the minimum employer contribution prior to 5 April 2017 under pension auto-enrolment rules is 1% of pensionable pay between £5,824 and £42,385. From 6 April 2017 until 5 April 2019 this minimum employer contribution will rise to 2%. From 6 April 2019 onwards it will rise to 3%.

The Joint Industry Board for Plumbing, Mechanical Engineering Services in England and Wales

This is the second phase of the agreement finalised in 2015. Rates for workers in the JIB-PMES industry increased by 2%, effective from 2 January 2017.

Scottish and Northern Ireland Joint Industry Board for the Plumbing Industry

The SNIJIB has reached on a two-year wage deal effective from 3 July 2017. Hourly wage increases of 2% in 2017 and 2018 have been agreed. For more information, refer to SNIJIB wage agreement document – July 2017. 

 

The BATJIC rates of wages effective from 26th June 2017 are:

Standard rates of pay for 39 hours per week	Per week	Per hour
S/NVQ3: Advanced	£471.12	£12.08
S/NVQ2: Intermediate	£405.60	£10.40
Adult general operative	£359.97	£9.23
For entrants aged 19 years and over
Third 12 months with NVQ2	£383.37	£9.83
Third 12 months without NVQ	£333.84	£8.56
Apprentices under 19 years of age
18 years of age with NVQ2	£315.51	£8.09
18 years of age without NVQ2	£333.84	£8.56

WAGE AGREEMENT SUMMARY

The following table summarises the wage agreements currently in force for the principal wage fixing bodies within the construction industry

Operatives	Agreement body	Current basic hourly rate	Effective since	Details in	Date of next review
Builders and civil engineering operatives	Construction Industry Joint Council	Craft rate: £11.93/hour	26 June 2017	Spon’s Architects’ and Builders’ Price Book 2018	June 2018
	ºÚ¶´ÉçÇø and Allied Trades Joint Industrial Council (BATJIC)	S/NVQ3 advanced craft: £12.08/hour	26 June 2017	Spon’s Architects’ and Builders’ Price Book 2018	June 2018
Plumbers	The Joint Industry Board for Plumbing Mechanical Engineering Services in England and Wales	Advanced plumber: £14.70/hour	2 January 2017	Spon’s Architects’ and Builders’ Price Book 2018	January 2018
	Scottish and Northern Ireland Joint Industry Board for the Plumbing Industry	Advanced plumber: £13.95/hour	3 July 2017	Spon’s Architects’ and Builders’ Price Book 2018	July 2019
H&V operatives	Joint Conciliation Committee of the Heating, Ventilation and Domestic Engineering Industry	Craftsman: £12.46/hour	2 October 2016	Joint Conciliation Comittee of the Heating, Ventilation and Domestic Engineering Industry	A two-year agreement. Next review end of 2017 for October 2018 and 2019
Electricians (national)	The Joint Industry Board for the Electrical Contracting Industry	Approved electrician: £15.92/hour (own transport)	2 January 2017	JIB for the Electrical Contracting Industry	A four-year agreement. Next review 2021
	Scottish Joint Industry Board for the Electrical Contracting Industry	Approved electrician: £15.92/hour (own transport)	2 January 2017	SJIB for the Electrical Contracting Industry	A four-year agreement. Next review 2021