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01/ Key changes

• Construction output growth for the last two quarters has shown steady growth, rising 1.7% in 2013 Q3 with three consecutive months of growth for the first time since 2011
• UK construction output is at its highest since September 2007 but is still below pre-recession levels by more than 10%
• Growth in new housing sustains momentum with a 15% increase over last 12 months
• Construction materials prices remain subdued during 2013 Q3
• Steel price continues to fall as global demand sags
• Consumer price index rose by 2.2% in the year to October, down from 2.7% in September

The following chart shows how Aecom’s index series, reflecting cost movements in different construction sectors, have fared since 2000, with the movement of the Consumer Prices Index for comparison.

Percentage change year-on-year (Q4 2012 to Q4 2013)

2013 Q4 figures provisional. Consumer Price Index @ October 2013.

ºÚ¶´ÉçÇø cost index
There has been a 2% increase in the index over the last 12 months with a 0.1% increase between the last two quarters.

Mechanical cost index
The Mechanical index shows a 1.8% increase over the last 12 months with no noticeable change between the last two quarters.

Electrical cost index
Year-on-year increase of 1% is lower than for the previous Cost Update published in August 2013, but reflects a 1.4% increase between quarters.

Consumer prices index
The index rose by 0.1% between September and October 2013 leading to a fall of 2.2% over the 12 months to October. Reduced transport costs were the main contributor to the reduction as petrol prices fell by almost 5 pence per litre between September and October.

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 for the calculation of increased costs on fluctuating or variation of price contracts. They 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 last 12 months between October 2012 and October 2013, the 60 building work categories recorded an average rise of 1.1%, down marginally from the 1.2% reported three months ago.

Of the 60 work categories published, 47 categories show a price increase and eight a price fall over the last 12 months, with an average increase of 1.1%.

The largest price increases over the last 12 months have been in the following work categories:

The largest fallers are:

03/ Executive summary

• Industry input costs rise â–²
• Industry output prices rise 0.8% in the year to October â–²
• Construction materials prices subdued â–º
• Metals prices fall â–¼
• Imported materials as a whole rose 1.1% in July â–²
• Steel prices continue decline â–¼
• Rate of consumer price inflation falls â–¼

04 / key indicators

The annual rate in October fell to 2.2% from 2.7% in August.

Industry input costs

The total input price fell by 0.3% following a rise of 0.9% in the year to October.

Key price movements over the last 12 months to October have been:

Industry output prices

Factory gate inflation now stands at 0.8% for the year and is currently at its lowest level since October 2009. It has been reducing since July 2013.

Metals prices continue to fall back quite sharply as concerns grow over the economic slowdown in China, the top buyer of base metals.

The strengthening of the pound over recent months is a reflection of the UKs economic recovery gaining momentum.

The fall in £/$ between July and August shows a short-term weakening of the Dollar against Sterling, although the long term trend shows a strengthening of the Dollar against Sterling.

Construction industry

Materials price increases for the construction industry over the last 12 months are detailed below:

Some increase in construction materials prices at the beginning of the year, particularly for new housing and repair and maintenance, which show an increase over 1% but, year on year, prices are still relatively subdued.

Mechanical and electrical materials prices have fallen a little over the year but are generally stable.

A few materials have shown above or below average price movement over the last year:

(Data sources: ONS and BIS)
(*Sep 2013 figures provisional)

05 / Labour market statistics

• Construction workers’ average weekly total pay for 2013 Q3 was £552
• Average total pay for all employees in Great Britain was £475 per week
• For Q2 2013 there were 2,006 million people working in construction, an increase of 0.7% over the previous quarter.

06 / Wage agreements

The three main construction unions and employees are currently negotiating wage agreements for the next three years.

The initial offer, which would cover 500,000 workers under the national wage agreement, breaks down as a 1% rise in January, followed by 1% in September 2014 and then 2.5% in 2015. We need to wait to see the final outcome of the negotiations.

ºÚ¶´ÉçÇø and Allied Trades

BATJIC agreed new wage rates which came into effect on 17 June 2013 and run to 15 June 2014.

The 2013/14 agreement involves a 2% increase in pay. The rise is across the board except for the hourly rate for the adult general operative which increases by 3% from £7.96 to £8.20 per hour. There are also improvements in the death benefit scheme, which increases to £25,000, and statutory sick pay rises to £119 per week.

The new BATJIC rates of wages are:

Wage agreement summary

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