Rounding up 2020 and looking forward to the next year and beyond

By Rebeccah Dowell, January 7th 2021

Further to our review of The Impact of COVID-19 on the UK construction market available here, Rushton International continue to monitor the developing situation.

General Economic background

The Consumer Prices Index (CPI), the government’s measure of inflation, rose by 0.6% in September 2020 compared with a year earlier, up from 0.2% in the previous month, currently below the government’s target level of 2%. Moving forward, the Treasury report that the average of independent forecasts shows consumer price inflation at 0.6% in 2020, rising to 1.9% in 2021, rising to 2.1% in 2022, and remaining there over the following two years.

The Retail Price Index (RPI), which measures general inflation, rose by 1.1% in September 2020 compared with a year earlier, up from 0.5% in August 2020. Forecasting forwards, the average of independent predictions also shows retail prices inflation at 1.2% in 2020, 2.8% in 2021, and around 3.3% in 2022, 2023 and 2024.

Manufacturing input prices (excluding food, beverages, tobacco and petroleum) rose by 2.2% in August 2020 compared with the previous month, and by 1.3% on an annual basis. Manufacturing output prices (excluding food, beverages, tobacco and petroleum) rose by 0.2% in August 2020 compared with the previous month, and by 0.1% compared with a year early.

GDP grew by 8.0% in the three months to August 2020 compared with the previous three months and decreased by 12.3% compared with the same period a year earlier.

The Bank of England base rate stands at 0.1%. Stirling exchange rates against the Euro stand at around 1.10 and against the US Dollar at 1.29, around 16% and 13% below those prior to the EU Referendum.

Current Construction Market

Tender prices in 3rd quarter 2020 fell by 1.5% compared with the previous quarter, and by 1.8% compared with a year earlier. This is in direct contrast to materials prices rising by 0.3% in 3rd quarter 2020 compared with the previous quarter but fell by 0.3% compared with a year earlier.

Generally building costs rose by 0.3% in 3rd quarter 2020 compared with 2nd quarter 2020, but remained unchanged compared with a year earlier.

Total new work output decreased by 37% in 2nd quarter 2020 compared with the previous quarter and fell by 38% compared with a year earlier.


Over the next five years new construction output is expected to increase by 10% (2024 compared with 2019) costs are expected to rise by 16% and tender prices by 14% over the period.

Following a sharp fall in GDP due to Covid-19, bounce back is anticipated in 2021 and then growth levels around 2% per annum, rising by around 2% to 3% per annum over the next 5 years.

The main risks to materials prices will be difficulty in obtaining materials during the Covid19 crisis, oil prices, tariffs on imports and sterling exchange rates.

Interest rates are expected to rise gradually to 1.25% in 2024, with sterling exchange rates remaining depressed for the period of the Brexit negotiations.

Sources; The Building Cost Information Service (BCIS) of The Royal Institution of Chartered Surveyors RICS and the Office for National Statistics (ONS) and prepared as at the end of Q4 2020 and at the time it was assumed that;

  • A second wave of Covid19 would not result in a UK wide lockdown, which has been put in place, since 5th Jan 2021.
  • That the vaccine and rollout of, will be timely and successful.
  • The Brexit transitional period will end on 31 December, which has come to fruition.
  • Sterling exchange rates are expected to remain depressed.
  • Free movement of labour continues to the end of the transitional period, with restrictions in movement after that.
  • Reduced demand will ease the labour supply problems caused by a reduction in EU workers, and that any excess demand will be met by UK construction labour laid off as a result of the Covid19 crisis.
  • That it remains desirable for EU workers to work in the UK and that demand for construction operatives in the EU remains unchanged.


Tender prices are expected rise by c.15% over the next five years, against a background of stagnant UK GDP growth, which is expected to rise only 3% over the next five years, with construction output rising 10% over the same period. With demand increasing, and with less contractors in the market (liquidations during COVID-19), tender prices are forecast to start to rise ahead of input costs as output bounces back. The sharp fall in 2020 (-18%) will be offset by a bounce back in 2021 (+12%) followed by relatively strong annual growth of between +5% and +7% going forwards.

The above is meant purely as a guide and the various sectors and regions will vary significantly. Rushton International strongly recommends a cautious and risk-averse approach to reviewing Declared Values and that regular valuations are undertaken. We can help: Business as the new normal.

For Buildings, Civil Engineering, Civic Infrastructure and General Real Estate enquiries please contact;

Andrew Reed MSc MRICS MCABE 
Director and Head of Buildings
07904 974 964 


Gareth Williams BSc MRICS
07788 188847


About Rushton International

Rushton International is an independent and impartial asset valuation and advisory firm. We specialise in the valuation of plant, equipment and buildings for insurance purposes. With our team of qualified and accredited valuers, we have the experience, qualifications and expertise to value any asset, anywhere in the world.

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