Gloomy Arcadis report warns on falling demand and rising costs

Arcadis has warned the UK construction sector is at risk of a double dip as weak demand, falling orders and renewed cost pressures undermine confidence.

The firm said the slowdown is broad-based, with all major sectors affected. Orders fell particularly sharply in commercial and public non-residential work, while housing remains weak despite some signs that demand is stabilising.

The report says construction is being held back by a combination of subdued underlying demand, delayed decision-making, slower approvals and weaker investor confidence, against a backdrop of continued uncertainty linked to the Gulf conflict.

It added: “Cost pressures are also beginning to rebuild. Materials inflation for all work reached 6% year on year in June, the highest level since March 2023. Energy markets remain volatile, with European gas prices up 55% year on year in July and copper up 39%, adding further pressure to manufacturing input costs and increasing risk on fixed-price contracts. Diesel prices are also creating a particular concern for infrastructure delivery.

“Arcadis has kept its tender price inflation forecasts unchanged for 2026 to 2028, because our projections already account for inflationary pressures.”

Simon Rawlinson, Head of strategic research and insight at Arcadis, said: “The UK economy has held up better than many expected but construction is telling a very different story. Output is barely moving, orders have fallen sharply for two quarters in a row, and that points to a clear risk of a double dip in workload.

“At the same time, inflationary pressures are building again. Energy and commodity markets remain volatile, materials costs are rising, and clients and contractors are having to manage growing uncertainty in an already fragile market.

“There are pockets of opportunity, particularly in infrastructure and public investment but they are still too limited to drive a broad recovery. For now, the hard data points to a market that remains under real pressure.”

Meanwhile, consultant RLB said sector and regional bright spots remain despite a softer national demand outlook.

It said sector recovery remains mixed with advanced tech and data centres continuing at pace and capital to deploy in sectors such as residential but pivoted away from development. Longer term pipelines in many regions including Wales, the North West and Yorkshire remain strong.