The annual UK inflation rate has generally been rising since February 2021 and according to the Office of National Statistics (ONS), 41% of trading businesses reported prices of goods or services bought had increased by a considerable amount.
Construction companies are no exception, with many across the industry reporting significant cost increases for the products they need. Those priced the highest are gravel, sand, clays and insulating materials. Unfortunately, those organizations working on fixed price contracts are usually the ones that suffer the most – with many contractors providing goods without reaping the true value of the product. This poses a real threat to businesses, who risk failing if the market doesn’t balance out.
The economic uncertainty has brought decision-making and forward planning to a standstill – at every level. The fluctuating inflation figure has made it difficult to accurately cost new projects - stopping many of them from moving forward. Just last month, the UK government scrapped plans to build ‘smart motorways’ – which was estimated to cost more than £1 billion. While there was a lack of public confidence in the project – central government cited ‘financial pressures’ as the reason for its abandonment. They aren’t the only ones either, many development companies are discarding plans because it’s just too risky in the current market.
It's problematic for the projects underway too – with the rise in inflation making it difficult to deliver projects on time and within cost. Project managers must carefully track budgets, re-evaluate their procurement procedures and really scrutinize their supply chain – to weather the storm.
Interestingly, UK investment companies have started to look for solutions to the problem through technology. Without a doubt, technology does have a long-track record of making products and processes faster and cheaper. Earlier this year, Deloitte rightly pointed out the UK’s construction productivity growth lags behind that of many other sectors, and in the UK, it is below the national average of growth than in most developed countries. The skills shortage in the sector, various supply chain issues and projects with slim profit margins continue to contribute to this - however Deloitte suggests technology has an important part to play in rectifying the problem. It argues technology is becoming more accessible and will continue to embed itself in the supply chain over the next year and beyond. Deloitte predicts more organizations will continue to invest in new technologies to implement a digital way of working.
Those in the development and construction sector pride themselves on their delivery of their product, and efficiency and collaboration is what truly makes a project successful. In the next year and beyond, more companies will invest in technology to innovate and enhance the way they work – bringing that passion and spark back into the process of delivering a project. There are new technologies available and ready to support developers when needed.
The construction sector, and the economy more generally, continues to navigate its way through a turbulent time, but it is vital we act now to prepare for the next step as the UK gets back on its feet.