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Rising inflation to hit fixed price contractors

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SURGING INFLATION could plunge contractors on fixedprice contracts into loss, economists warned this week.

The warning comes as the government's official inflation indicator registered a 3% increase over 12 months in December.

Official fi gures for December show that the Consumer Price Index (CPI) had risen by 3% over 12 months.

This follows a 2.7% rise recorded in November. The rises are way above the Bank of England's inflation target of 2%.

he surge immediately prompted the Bank to raise interest rates, further heightening contractors' exposure.

'There are a lot of contractors out there still on lump sum fixed-price contracts and we will see a few casualties this year, ' a senior industry analyst told NCE.

'Infl on is a potential problem, first because costs go up and second because of its volatility, ' agreed Construction Products Association economics director Alan Wilen.

Civil engineering contractors admitted that inflation was a concern.

'The biggest difficulty on a lump sum contract is rising inflation and interest rates.

We are trying to make a balance between Early Contractor Involvement type contracts and priced work to keep our skills honed, ' said Morgan Est managing director Mark Cutler.

Cutler said fixed price work was very prevalent in Scotland 'The building market still has many of them [fixed-price contracts] and I dare say there are some contractors out there that will be hit, ' added a spokesman for one civils firm.

The largest upward effect on the CPI annual rate came from transport costs. The average price of petrol increased by 2p per litre between November and December, compared with a fall of 3p a year earlier.

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