The UK construction industry has stagnated over the past 50 years in terms of labour productivity. The figures are stark. While other sectors have made notable strides in the same timeframe in terms of output per worker, construction has failed to achieve similar momentum. Perhaps even more concerning is the performance of multi-factor productivity (MFP), which takes into account not only labour but also capital and other inputs. In construction, MFP has exhibited a clear downward trend over the past few decades.

According to the Office for National Statistics (ONS), there is a close relationship between labour productivity and MFP. In theory, labour productivity can rise even if MFP falls, if more capital or intermediate inputs are being used inefficiently. This is precisely what we are seeing in the construction sector: modest labour output increases, driven by longer hours or increased material input all while less is being achieved per unit of total input.

As I have discussed here, the construction industry’s performance appears even more dismal when compared to productivity trends across the economy as a whole. Whereas sectors such as manufacturing, professional services, and IT have seen steady gains in productivity, construction has not only remained stagnant, but declined.

What’s Driving This Decline?

There are multiple factors that contribute to this persistent underperformance in construction productivity:

1. Fragmentation and Lack of Standardisation: Every industry has fragmentation to some extent as a function of a market, however, the project based nature of construction increases the scale, intensity and effect of this fragmentation. This creates inefficiencies, redundancies, and coordination problems.
2. Slow Technology Adoption: Compared to other industries, construction has been slow to adopt automation, robotics, and digital project management tools. Where other sectors have reaped the benefits of Industry 4.0, construction continues to rely on outdated methods and manual labour. There are of course some very good reasons for this which I plan to discuss in another article, but acknowledgement does not change the reality
3. Skills Shortage: The UK construction industry has long suffered from skills shortages, especially among younger workers and in specialised trades. This issue has been exacerbated by Brexit and an ageing workforce, leading to increased costs and delays.
4. Inefficient Procurement Models: The way construction contracts are awarded and managed often promotes adversarial relationships, focuses on lowest cost rather than best value, and fails to incentivise innovation or long-term performance.
5. Regulatory and Planning Delays: Bureaucratic processes related to planning approvals, health and safety compliance, and environmental assessments often slow projects down and introduce unpredictability in timelines.
6. Economic Cyclicality: The construction industry is highly susceptible to economic fluctuations. Recessions, rising interest rates, and government policy shifts frequently halt or slow building activity, making it difficult to invest in long-term productivity improvements.

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Recent Trends and Updates

In more recent data from the ONS Construction Output Bulletin (Dec 2024), the industry experienced a modest 0.4% increase in annual output for 2024 — marking the fourth consecutive year of growth. However, this growth was entirely attributed to an 8.5% increase in repair and maintenance work. New work, which generally signals expansion and investment, actually fell by 5.3%, indicating a lack of forward momentum.

New orders — a key leading indicator of future construction activity — declined by 2.4% in Q4 2024 compared to the previous quarter. This drop was particularly acute in infrastructure (–23.5%) and private industrial projects (–19.7%).

These statistics suggest that while the sector may appear to be recovering on the surface, the underlying composition of activity is skewed toward short-term maintenance rather than long-term expansion and investment. Moreover, the fall in new orders suggests that this trend may worsen in the coming quarters unless there is decisive intervention.

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The Economic Cost of Inaction

The consequences of this sustained stagnation in productivity are very real:

• Higher construction costs, making homes and infrastructure more expensive to build and maintain.
• Delays in national infrastructure delivery, which can impact transport, energy, and digital connectivity.
• Reduced competitiveness of the UK’s construction firms in global markets.
• Lower economic resilience, as productivity is a core component of GDP growth and wage increases.

Without improving productivity, the UK risks falling behind other developed economies in infrastructure delivery — a key enabler of future growth.

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What Can Be Done?

To break out of this cycle, several reforms and innovations should be prioritised:

• Modern Methods of Construction (MMC): Prefabrication, modular construction, and off-site manufacturing can speed up delivery, reduce waste, and improve quality.
• Digital Transformation: Embracing tools such as Building Information Modelling (BIM), digital twins, AI-driven planning, and real-time site analytics can dramatically increase project efficiency.
• Upskilling and Apprenticeships: Investing in the next generation of skilled workers through better apprenticeships, retraining programmes, and education can address the labour shortage.
• Procurement Reform: Moving toward collaborative contracts, outcome-based procurement, and integrated project delivery models can foster better alignment between stakeholders.
• Policy and Regulatory Innovation: Simplifying planning processes, streamlining approvals, and incentivising sustainable practices can unlock much-needed efficiency.

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Final Thoughts

The UK construction industry stands at a crossroads. After decades of underperformance, the sector has both the need and the opportunity to transform. With the right combination of technology, policy, and cultural change, construction can become not only more productive but also more sustainable, resilient, and globally competitive.

But without bold moves, the sector may remain stuck in a low-productivity trap — dragging down the economy with it.