Cost pressures inflated construction output by £23bn since pandemic, says analyst

Rising costs added £23bn to the value of construction output compared with its pre-pandemic level, according to information firm Barbour ABI. 

The latest Office for National Statistics data, published last week, showed that annual construction output value surpassed £200bn for the first time, hitting a total value of nearly £205bn – a rise of 15% from 2021 output in nominal terms. 

But according to Barbour ABI, which compared real prices against nominal price indices, the value would have been closer to £181bn if prices had remained at pre-pandemic levels. 

The news comes alongside the release of a survey from consultant Pick Everard, which claims construction bosses are trying to keep inflation down by suppressing wage rises. 

The survey of consultants, clients and contractors found two-third were handing out pay rises lower than the 9% headline inflation rate, with no respondents confirming pay rises ahead of inflation. 

The survey also showed that 62% of those polled did not believe this will affect staff turnover, with the findings indicating that job security was being prioritised over income growth.   

Gavin Mason, director at Pick Everard, said the industry appeared to be “in a position of equilibrium” and that it had not found “evidence of inflationary pressure from within the sector”. 

“From a commercial perspective, it is an optimistic start to the year,” he said.  

“Inflation is not showing signs of converting into a wage-price spiral, which gives us confidence that interest rate increases have peaked and that there will be scope to start reducing rates by the middle of 2023.  

“We expect the annual rate of inflation to reduce after April 2023, giving positive signs that investment in construction will look more enticing by the summer.”