The UK construction industry under cyclical high inflation, high interest rates and recession

Abstract

Since 1970, the UK construction industry has suffered three major recessions provoked by a fundamental factor — high inflation. This paper first examines the root causes of cyclical high inflation — labour cost push and excess borrowing. Second, it identifies the necessary conditions for high inflation to lead to a recession through use of a high interest rate policy by the government. Finally, the paper analyses and lists the effects of a high interest rate policy and recession upon the UK construction industry. The purposes of this paper is for project managers to raise awareness of the effects of high inflation and recession, and to attempt to provide guidance for risk analysis in conditions of high inflation, high interest rate policy and recession at a macroeconomic level.