Total UK construction output is forecast to grow by 1.9% in 2025 and 3.7% in 2026. The summer forecast is largely unchanged from the start of the year but the risks and uncertainties have increased significantly. 

Construction activity was subdued in January and February, followed by a considerable rise in March and April, easing slightly in May, followed by an uptick in June and early July. Despite this, the S&P Construction Purchasing Managers’ Index (PMI) dropped to 44.3 in July, marking the steepest downturn since May 2020.

UK economic growth was positive in 2025 Q1, but with the impacts of increases in business wage costs since April and likely tax rises in the autumn Budget, medium-term growth prospects are likely to be more subdued than in recent forecasts. More positively, the government’s supply-side reforms and current focus on capital expenditure may benefit the economy in the long term, although in the short term, business investment remains weak.

In addition, continued US tariff disruptions and the escalation in the Middle East conflict raise risk and uncertainty levels which, in turn, impact UK growth prospects.

From a government policy perspective, its spring statement in March and spending review in June point to medium- to long-term growth in affordable housing, rail and energy infrastructure, as well as military housing, education and some areas of energy efficiency retrofit. 

Capital budgets for government departments are expected to grow substantially over the forecast period, but it will take time for this to translate into higher output. The spending review 2025 confirmed long-term funding for the main investment programmes in health and education, along with new prisons. 

Read more…