Before the pandemic began, inflationary pressures were set to remain due to the value of sterling against the euro and US dollar. It is very likely that the construction supply chain will continue to experience this commercial pressure, particularly where imported products and materials account for a large proportion of the construction costs.
Movement is to be expected in the exchange rates as we and other countries start to emerge from lockdown, and we start to see the resultant fallout of our economy relative to the rest of Europe and other countries. We will likely see further instability as the UK approaches the end of the transition period for Brexit negotiations and I think these factors will maintain the upward pressure on the cost for imported products and materials.
Labour prices were also increasing on our way into the pandemic. A significant proportion of our construction labour migrates from other European countries and in the face of lockdown and Brexit uncertainty, there is a possibility that labour shortages will occur. This will maintain the upward pressure on labour prices if site activity regains some momentum, further squeezing Contractor margins and placing additional pressure on overly competitive tender prices.
I think financial pressure on Contractors and the supply chain is likely to be present throughout 2020 and projects that have been delayed or cancelled due to the pandemic will only compound the issue. It is likely we will see insolvencies and we will see evidence of disruption and reduced productivity in the supply chain, but to what extent we are yet to discover.
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