A year full of challenges, pressure and uncertainties for our industry – that was 2025

The year 2025 has been a tentative one for the industry. Post-general election, construction has struggled for a foothold in a low-growth economy and, if we have learnt anything from the past 12 months, it is that policy and spending plans are not instant magic wands for the sector’s biggest challenges.

By and large, 2025 has been a year of uncertainty.

Trade wars were an early driver. They threatened – and later delivered  unprecedented disruption to global supply chains and capital market flows, tanking confidence and demand.

According to profit warnings issued by construction firms in the first quarter, rising uncertainty was the primary challenge facing the sector in the first few months of the year, most likely as a result of US tariffs and delayed government spending announcements stalling client and investor decision-making.

It is fair to say that the unpredictability of tariff outcomes ended up being more damaging for construction than the tariffs themselves. The domestic steel industry, already in decline, certainly felt the US tariff more keenly, although the EU’s proposal to halve how much UK steel it imports now seems more life-threatening.

Into spring, construction businesses encountered further hot water in the shape of increased employer National Insurance contributions (NICs). By May, the sector’s near-900,000 SMEs in particular found themselves squeezed between rising employment costs, skills shortages and changing labour market policy.

New immigration policy arrived at a time of labour cost inflation and months if not years before new investment and labour strategies could bed in

The government’s immigration white paper, which was published in mid-May and introduced since-actioned plans to tighten visa controls and reduce domestic reliance on overseas workers, was at odds with construction’s employment model – one deeply rooted in subcontractor usage and foreign labour. It expected sectors to tackle labour shortages with workforce strategies, direct recruitment and training.

Off the back of a £625m package for nurturing construction skills and talent in March, the government possibly did not see this as a particularly big ask. But new immigration policy arrived at a time of labour cost inflation and months if not years before new investment and labour strategies could bed in. If anything, it just piled on more pressure.

The BCIS All-in Tender Price Index Panel – comprised of practising cost consultants from firms involved in multiple tenders – has throughout the year testified to the effects of this pressure.

Higher costs, contractor risk-aversion, higher demand for mechanical, engineering and plumbing disciplines, and order books consciously filled with non-higher-risk building (HRB) work to avoid gateway 2 delays and maintain labour, were all cited and symptomatic of deepening labour instability.

Of course, 2025 and construction could not be mentioned without discussing gateway 2 and the Building Safety Regulator (BSR) in the next breath. Stricter measures introduced under the Building Safety Act, including the establishment of the BSR and its new approval regime for HRBs, left significant footprints across this year.

Delayed decision-making on HRB applications increased more than fourfold between Q1 in 2024 and Q1 in 2025 as the BSR’s capacity waned, leading to moving project starts and severe cost implications, particularly for residential developers.

A new innovation unit, dedicated to processing new-build applications, has made a difference, but the BSR still has a lot of ground to cover. with 1,133 live cases across all categories still in its system as of 17 November.

Ongoing regulatory hold-ups aside, Q2 2025 brought cause for some optimism. The much-awaited trio of phase two of the spending review and the 10-year infrastructure and industrial strategies realised hopes for significant public sector capital to mobilise the private sector.

Publication of the first iteration of the infrastructure pipeline in July was also much welcomed, but missing key details on private finance. We are still awaiting the government’s full strategy six months on – perhaps a sign that there are currently bigger fish to fry, or that the National Infrastructure and Service Transformation Authority (NISTA), formed in April from the merged Infrastructure and Projects Authority and National Infrastructure Commission, has not quite ironed out the feasibility of private finance models, reinvented or new.

Higher employment and business costs for construction businesses are not ideal and will only work against cash flows, output and project viability

That said, progress on major infrastructure has been ticking away in the background. Multiple transport and energy schemes, including Heathrow Airport’s third runway, have got the green light from the government and have got a new planning and infrastructure bill. This, combined with the £48m dedicated to planning capacity reinforcements in the Budget, should support output growth in this Parliament.

Speaking of which, this was one of just a few positive takeaways from what was a difficult Budget. Higher employment and business costs for construction businesses are not ideal and will only work against cash flows, output and project viability in the coming years.

There was little for the housing market despite slow housebuilding activity levels. The 1.5 million homes target does not seem any closer after 12 months, particularly considering the shrinking construction workforce and additional regulatory cost burdens facing housebuilders on the horizon.

December’s output and new orders data will not be published for a while, but the accumulated weight of economic uncertainty and supply and demand challenges could see construction’s year end on a subdued note.

Familiar constraints will be no less sharp in early 2026 and, after a fairly tame 12 months, it looks likely that firms will have to remain resilient for a little while longer.

Karl Horton is the data services director at the Building Cost Information Service