Labour’s building boom to fan inflation if UK limits migration


Britain will be hit by rising prices and severe bottlenecks as a result of the Labour government’s plans for an historic increase in building projects, analysis shows. As much as £900 billion ($1.1 trillion) will be spent on public and private infrastructure by the end of 2029, according to a Boston Consulting Group report published Thursday — almost three times the level of the previous five years.

“Too few have asked whether our supply chains can actually deliver this investment,” Raoul Ruparel and Tim Chapman from BCG wrote in the report. “As it stands, the answer is no.”

Labour is determined to replicate Britain’s postwar era of building, a crucial part of its plan to boost the economy. UK growth has averaged less than 2% per year since the global financial crisis, weighed down by the country’s abysmal levels of productivity. However, the boom risks creating logjams and inflation due to record-low numbers of construction workers, as well as a shortage of materials. The UK has 40% fewer welders, assemblers and routine operatives than two decades ago, while the number of construction employees has fallen 15% over the last 15 years.

Prime Minister Keir Starmer is trapped between his promise to revive growth and efforts to show he’s clamping down on migration amid the rising popularity of the right-wing Reform UK party. Training builders can take years, and the UK will have to rely on overseas workers in the initial stages of its infrastructure push. The report could also sound alarm bells at the Bank of England. A demand shock of this magnitude risks blindsiding policymakers who are in the process of cutting interest rates.

The 1,600 infrastructure plans over the next five years analyzed by BCG include landmark projects like the controversial third runway at London’s Heathrow airport, the UK’s first nuclear power plant in a generation or the HS2 rail network connecting London with Birmingham.

Sectors like renewable energy, nuclear and water are expected to lift infrastructure spending as much as four times by 2030 compared with the previous five years. Many of the large projects will be concentrated in a few regional hotspots. For example, the East of England is set to see investment worth almost £70 billion in the next five years mainly due to the Sizewell C nuclear power station and the construction of offshore wind farms on the Norfolk coast.

“It is quickly apparent that many of these areas are quite remote and sourcing the necessary skills on sites will be a challenge. Similarly, transporting significant raw materials and large components can also be challenging,” Ruparel and Chapman wrote. “If not handled properly it could lead to inflation and put strain on local infrastructure.”

In the long run the UK should invest in skills at a local level by strengthening links between colleges and industry, up-skilling existing staff and helping workers transition between industries, for example from oil and gas to wind operations, the report said. However, attracting workers from abroad to fill shortages will be “necessary” to deliver planned projects on time in the next five to 10 years. Recommendations include adding key roles like electrical and electronic trades to the shortage occupations list, making it easier to source overseas staff for these jobs, and relaxing English speaking requirements for the main visas.

Starmer will find it difficult to sell that to many voters, however. Immigration remains one of the most pressing concerns for the public amid worries that the high number of people coming to the country is straining public services. The increase in net migration has also fueled the rise of Nigel Farage’s Reform party which has recently surpassed Labour in opinion polls.

Shortages of critical materials are also expected to add inflationary pressures and lead to bottlenecks as many other countries are relying on the same inputs for their green energy transition and other infrastructure projects. Materials that are used in multiple industries — like copper — will be in particularly short supply.

The American experience during the post-Covid reopening offers a cautionary tale for the UK. As the US economy couldn’t cope with the jump in consumer demand, the country experienced a surge in inflation, particularly for things like lumber or skilled worker wages. Around 60% of inflation during that period came from supply chain constraints, according to research from the Federal Reserve Bank of San Francisco.



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