The Consumer Price Index (CPI) measure of inflation leapt to 2.3% in February, up from 1.8% in January, pushing the rate above the Bank of England (BofE) target 2% for normal market growth.
The alternative Retail Price Index (RPI) measure rose to 3.2% in February. Despite the rises, the pressure for an increase in interest rates remains low, as prospects for sustained growth post Brexit are deteriorating. The BoE expects CPI inflation to peak at 2.8% in 2018.
Headline inflation is now running at the same rate as growth in wages, putting pressure on household spending.
Hard Brexit Construction Impact
The RICS estimates that UK construction could lose 8% of its workforce if a hard Brexit results in no access to the single market. Similar research in London estimates that currently 1 in 4 construction workers are from the European Union. The loss of European workers would impact the industry which is already faced with a severe skills shortage and lack of investment in future training. Pure economics would indicate that labour rates would be forced up by the lack of supply, however a reduction in demand is more likely to keep rates down and more than offset the effect of loss of labour. Such is the scale of the potential skills shortage that the ability of the industry to deliver projects may be threatened and likely lead to longer delivery periods.
Investment in training will give greater domestic resilience to a post Brexit market and should continue to be high on the construction industry agenda.
What the 2019 trading landscape looks like is still uncertain, with the prospect of tariffs and taxation a genuine concern, frankly any forecasting post Brexit is pure conjecture.
New Forecast for 2021
With the above comments in mind and in the absence of clear data, we have included our forecast to 2021 as the long term, historical average for a “normal” growth market.