The 2.8% rise this year represent a slowing of build-cost inflation in the capital from 3.9% in 2017.

The Turner & Townsend International Construction Market Survey 2018 says that tendering conditions have cooled in the capital, reflecting a tempering of the appetite for investment amid Brexit-related uncertainties.

Elsewhere in the UK, there are signs that devolution is supporting investment hot spots by driving spending on infrastructure and housing. A flurry of developer activity in Manchester and Birmingham – especially on the back of High Speed 2 in Birmingham – is contributing to rising construction costs across both regions.

A key driver behind ongoing inflation across the UK remains persistent capacity constraints, linked to skills shortages pushing up pay. The survey finds that across the UK, labour costs have increased by 3.1% to an average of £27.90 per hour. In London it is £34 per hour

Steve McGuckin, head of client programmes at Turner & Townsend, said that changes were needed to control costs: “In the UK the skills challenge continues to contribute to cost inflation.  We need to adopt digital tools, modern manufacturing methods and automation if we are to ease the pressure on resources and help attract new talent to our dynamic sector.

“We need a fundamental shake up of the industry model to incentivise this investment, otherwise there is every excuse not to change. Projects need to be set up to deliver better performance from the construction supply chain – rewarding innovation in methods and materials which ensure better outcomes for the communities we build for.”

Source: The construction index

 

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