Construction input costs are recording their highest level for five years, driven largely by materials and commodities but with continued pressure from wage rates. The majority of indicators have recorded 2% to 2.25% annual growth in building cost input and 2.5% to 3.5% growth in mechanical and electrical cost input.
Whilst the Pound has regained some ground on the Euro, the pass through of the collapse after Brexit is now compounding imported goods pricing.
Fuel oils have increased in the quarter to average US$ 55 which, whilst remaining historically low represent a 22% cost increase and in sterling terms has more than doubled since January 2016.
Average increases of weekly earnings in the industry continue to outstrip the rest of the economy, although we are seeing a tightening of wage rates in those employed in enabling and substructure trades. Uncertainty over investment has led to an increase in the employment of temporary workers rather than permanent staff, with freelancers enjoying a boom in workload.
UK unemployment fell to 4.8% in the three months to October, down 162,000 in the year, the lowest level since September 2005.
The number of self-employed, representing a large proportion of the construction industry, increased by 213,000 (15.1% of all people in work).
Risks to Growth
Worries over investment were at the top of the Bank of England’s concerns when interest rates were cut in August. Uncertainty stifles growth as investment is paused, with a similar caution on recruitment which, coupled with the impact of rising inflation due to Sterling’s fall, will squeeze real incomes and consumer spending, more than off-setting any beneficial effect on exports.
The downside risks to growth prospects are currently outweighing the upside.
Gross Domestic Product is currently 2.3% per annum following a strong quarter to the end of September at 0.5%, albeit lower than the previous pre-Brexit quarter of 0.7%. Construction contracted 1.4% in the quarter according to initial estimates from the ONS. With a clear Brexit plan still very uncertain, longterm projections are for much weaker growth.