Early signs last year’s output slump is turning a corner, says G&T report

Last year’s fall in construction output may be on the verge of turning a corner as firmer post-Budget certainty and signs of imminent interest rate cuts bring stalled projects back to the table, Gardiner & Theobald has said.

The consultant’s latest tender price inflation report said there were early signs that delayed schemes, particularly in the commercial sector, were beginning to re-engage with potential for momentum to build over the course of the year.

But it cautioned that continued cost pressures on firms including persistently elevated wage growth, labour supply constraints and rising prices for materials including copper were continuing to dampen prospects of a return to strong output growth.

The firm hiked its average annual tender price inflation forecast for 2026 to 3%, up from 2.5% in the last quarter of 2025, which it said reflected persistent cost pressures rather than a sharp uplift in demand.

However, it said factors which had contributed to last year’s contraction - which saw total construction output fall 2.1% in the fourth quarter compared to quarter three - were beginning to ease.

Improvements on the cost of capital were beginning to stabilise sentiment and reduce risks to scheme viability at the beginning of this year, which the report described as an important shift following two years of heightened uncertainty.

“Overall, the message is not that order books are rebuilding yet, but that forward demand has shifted from sharp contraction to a more measured, sideways profile,” the report said.

The Bank of England held interest rates at 3.75% this month in a knife-edge vote, with four out of nine members of the bank’s Monetary Policy Committee favouring an immediate reduction.

The rate of inflation fell sharply in January to 3% from 3.4% in December, according to figures published by the Office for National Statistics this week, increasing the likelihood of an interest rate cut next month.

Meanwhile, RIBA’s latest future trends report found workload confidence among surveyed architects sharply improved in January, rising eight index points to return the first positive balance in four months.

A positive balance indicates that architects, which are among the earliest construction sectors to experience signs of a wider industry recovery, are on average expecting their workloads to increase over the next three months.

The survey found increasing confidence in all regions, with the North of England the most positive with an workload index of +17, while London’s rose from zero in December to +4 in January.