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How falling output is forcing a pay squeeze

The latest labour market statistics for the UK note a marked fall in the rate of pay growth across the construction industry. 

As recently as last December the three-month rolling average of weekly pay in the sector was growing at an annual rate of 6.5 per cent, but this has now fallen to just 1.6 per cent and is lagging behind the 2.4 per cent recorded for the economy as a whole.

On the basis of the (admittedly less reliable) single-month figures, the latest data shows the annual growth of pay in construction is just 0.6 per cent. The single-month figures also show regular pay in construction (excluding bonuses) increasing even more slowly.

It is worth noting that the ONS data excludes those who are self-employed, which covers almost 40 per cent of the construction workforce. Nevertheless, with prices now growing at 2.7 per cent over the year, this represents a very pronounced squeeze in the average real rate of pay for industry workers. 

Growth reversed

The slowdown appears to be related to a decline in demand, with construction output as a whole falling in recent months. Since December, the volume of all work has declined by more than 2 per cent, following a steady period of growth. The decline has been particularly sharp in the construction of infrastructure, where output in March was almost 10 per cent lower than in December. 

There remains much uncertainty about the likely future trajectory. The new government’s approach to housing will be one key element, with the UK still facing a residential shortfall.

“New policy initiatives may be needed to stimulate the UK market sufficiently to ensure an increase in new build”

The extent of this shortfall will depend in some measure on what happens to migration following Brexit. Notwithstanding that, prices in the housing market are now subdued, with the annual rate of growth down to 4.1 per cent.

Rethinks needed

In London it has slowed to just 1.5 per cent and the latest month-on-month figures show a fall. New policy initiatives may be needed to stimulate the UK market sufficiently to ensure an increase in new build.

Likewise, the construction sector more broadly is likely to look to policy on infrastructure to provide a boost in civil engineering. The National Productivity Investment Fund, announced in last year’s Autumn Statement, is set to provide much-needed new public investment funding – appropriately so, given the low rates of interest currently available. 

The government will need to ensure this is sustained if the recent negative blip in construction is to be reversed.

Geraint Johnes is director of research at the Work Foundation – part of Lancaster University  

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