Total UK construction output is forecast to grow by 1.1% in 2025 and 2.8% in 2026, both downward revisions from the summer outlook of 1.9% and 3.7% respectively. Public sector programmes, energy infrastructure and industrial investment will underpin this growth, with the recovery in housing and major commercial developments more subdued.

UK GDP growth was slightly positive in 2025 Q1 and Q2, and this is likely to have continued into Q3. The macro‑economic backdrop is still challenging. Inflation remains sticky, interest rates are likely to fall more slowly than previously expected, and the government’s autumn Budget, with unspecified tax rises, has sparked nervousness among businesses and households. Both consumer spending and business investment are being deferred pending fiscal clarity. There also remains uncertainty as to whether the government will also cut back on some of the capital investment plans outlined in the June Spending Review.

The public sector is expected to grow faster than the private sector, reflecting sustained spending on schools, hospitals, defence and infrastructure frameworks. Overall, the industry will remain below its 2021 output peak until at least 2027.

Private housing and repair, maintenance and improvement (RM&I) activity remain weak due to affordability constraints, tax uncertainty and subdued consumer confidence. In contrast, energy infrastructure, water investment and high‑tech manufacturing are expected to deliver solid medium‑term expansion. Niche areas of opportunity include data centres, giga-factories and logistics facilities linked to electrification and AI; energy‑efficiency retrofits and fire safety remediation; and smaller, high‑quality commercial refurbishments and fit‑outs.

Key risks and constraints persist, including:

• Contractor insolvencies: Although down from their 2024 peak, insolvencies remain around 25% above pre‑pandemic levels, threatening supply‑chain continuity. 
• Building Safety Regulator delays: Continuing six- to nine‑month hold‑ups at gateway 2 (and three to four months at gateway 3) constrain starts on high‑rise residential, student housing and healthcare schemes.
• Skills and labour shortages: Construction employment is still well below 2019; loss of older skilled workers and reduced EU labour supply persist. Wage inflation (around 4%-5% year on year) squeezes contractors.

Material price inflation has largely flattened through 2025 and there has been little volatility in material cost inflation, indicating prices have stabilised after extreme spikes in 2022-23. Supply chain firms confirm input cost inflation has largely eased, and materials availability is now generally good, although overall prices remain around 20%-30% higher than 2019 levels.

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