The UK construction market has recovered from the downturn experienced between 2020 and 2023, but the growth outlook remains subdued and varied by sector, according to a new report published by leading sector consultancy McBains.
The consultancy’s latest industry report says that while competitive tendering is helping to constrain price growth, the sector continues to face uncertainty from geopolitical developments, energy costs, material price volatility and persistent labour shortages.
The report says construction output is anticipated to grow by 1.8% in 2027, strengthening to 2.8% in 2028, before moderating to 2.3% in 2029 and 2.1% in 2030.
Growth over the next five years is expected to be supported by infrastructure, defence, healthcare, data centres and public sector capital expenditure.
But residential and commercial development are likely to experience a more selective recovery, with affordability pressures, planning constraints, financing costs and increasing regulatory requirements continuing to affect project viability.
Highlights of the report include:
- Tender price inflation – the increase in prices for construction projects between the time a cost estimate is made and the time a tender is submitted because of fluctuations in material and equipment costs – is expected to remain relatively moderate but persistent over the coming years, broadly around 3% to 4% annually. Inflation remains a consideration, but current levels are more manageable than between 2020 and 2023.
- Construction material prices increased by 5.9% in the year to July 2026, with materials for other new work rising by 7.2%. Continued material price volatility, particularly for steel, alongside geopolitical uncertainty and energy costs, remains a risk to project budgets.
- Residential remains the principal area of uncertainty, with affordability, financing costs, planning constraints and regulatory requirements continuing to affect viability. Commercial development is also expected to remain selective, with demand increasingly focused on prime, sustainable assets and refurbishment. The report forecasts private housing output to remain flat in 2027, suggesting that meaningful recovery is unlikely in the immediate term.
- London continues to face particular affordability and viability pressures, and planning approval rates also remain comparatively lower: data based on official planning statistics shows an 82.5% approval rate in London, against 87% across England.
- Infrastructure investment is expected to provide one of the more resilient areas of the UK construction market over the next five years, supported by spending on transport, energy and other major projects such as data centres. Consequently, infrastructure output is forecast to increase by 14% between 2026 and 2031.
- The drive towards net zero will significantly influence the construction market over the next five years, with investment in retrofit and refurbishment projects expected to increase, particularly across commercial, healthcare, education and social housing.
- The other main risks to delivery are labour shortages, labour costs, planning delays, utility capacity constraints. Estimates in the industry suggest an additional 40,000 workers per year will be required through to 2030 in order to achieve growth and to meet government housebuilding targets.
Colin McCaffrey, director at McBains and leader of the team which produced the report, said:
“The UK construction market is entering a more stable period beyond the disruption experienced between 2020 and 2023, but it is far from business as usual. Competitive tendering is helping to constrain price growth, but the industry is still operating against a backdrop of elevated energy costs, labour shortages and persistent pressure on materials, affecting project viability and delivery.
“Looking ahead, we expect a gradual recovery rather than a rapid rebound. The divide between sectors is pronounced, with an encouraging outlook for infrastructure, defence and healthcare, which are predicted to benefit from significant investment. But due to affordability, material costs and regulation, residential remains constrained.
“Steel is one of the biggest near-term cost risks. We have seen prices rising sharply this year, with tighter import controls, the incoming Carbon Border Adjustment Mechanism, and volatility in energy costs making it harder for contractors to price with confidence. In this environment, a delay in procurement can have a direct impact on the bottom line.”
“While there are challenges to contend with, there are also opportunities. Over the next five years, we expect infrastructure, defence, healthcare and data centres to offer important opportunities for the sector, alongside growing demand for retrofit, as building owners look to improve energy performance with pressure to meet sustainability objectives and protect the long term value of their assets.”
“Projects that are well funded, properly planned and supported by a robust delivery strategy will be best placed to navigate the uncertainty facing the industry. With programme delays increasing exposure to inflation, supply chain risks and market repricing, it is essential to get design approvals, procurement and delivery milestones right.”
The report was compiled by analysing data from a variety of sources, including research by McBains itself and data from the Construction Products Association, the CITB, the Building Cost Information Service and others.
