UK construction outlook
Output and new orders
In 2024, construction output increased by 0.40%, marking the fourth year in a row of growth. However, investor confidence remains fragile. Strong new order figures in mid-2024 contributed to overall new order growth of 3.0% for the year. However, the last quarter saw a decline of 2.40%.
The S&P Global UK Construction Purchasing Managers Index reflects this slowdown. This fell to 44.6 in February 2025 from 48.1 in January – the lowest level in five years. The decline highlights delayed decision-making among clients and growing concerns about the economic outlook. We too are seeing a significant pipeline of projects stay on hold, awaiting improved viability.
Despite this, there are signs of optimism. In the last quarter, several commercial and leisure sector developments have been approved – but only for the next stage. This cautious approach is understandable but brings challenges.
The construction industry operates in an increasingly complex regulatory and performance-driven environment. Early contractor involvement is essential to make sure projects get the buildability advice needed for high-quality delivery. However, contractors may be reluctant to fully engage with a project when there is no guarantee this will go ahead.
Beyond these challenges, 2025 will see the introduction of several key regulations. These include the Procurement Act 2023, the Future Homes Standard, and various property-related legislation, such as the Planning Reform Bill. These come on top of the ongoing requirements of the Building Safety Act for high-risk buildings.
In this context, agility and expertise are key. Project teams should engage specialists who understand these regulations and can give clarity on their implications for projects.
Construction output
in Q4 2024
New work orders
in Q4 2024
Materials and commodities
The Department for Business and Trade (DBT) material price index fell by 0.90% in January 2025 compared to January 2024. This continues the downward trend that began after the inflationary peak in Q1 2022.
The sharp price inflation previously seen in mechanical, electrical, and plumbing-related materials has eased over the past quarter. However, project teams should pay close attention to key commercial fit-out packages, such as dry-lining, as rising activity in this sector is driving higher demand for these products.
In the year to January 2025, material price index for ‘all work’
Steelwork prices
Procurement
In the first quarter of 2025, developers have shown greater intent to progress major commercial schemes on a stage-by-stage basis. This follows delays in 2024. While the private residential sector remains subdued, there is notable activity in the public sector, particularly with large-scale mixed-use developments. These tend to feature substantial affordable housing provisions and town centre regeneration projects.
Main contractors and the supply chain are pursuing tender opportunities with renewed enthusiasm. However, supply chain fragility remains a concern, and high-profile companies continue to collapse. This suggests that the full impact of sub-economic tendering in the post-COVID period has yet to be fully realised.
Many organisations are still extremely sensitive to the pricing of risk, which is contributing to challenges in reaching financial closure on large two-stage contracts. In response, we are seeing fresh thinking and innovative procurement strategies emerge, including:
- The potential return of the Construction Management package-based procurement form as a viable alternative to lump sum contracts.
- Larger contractors opting for self-delivery where feasible, particularly by subdividing mechanical and electrical services into separately procured trades.
- Contractors showing a willingness to co-invest in schemes as a strategy to target higher returns.
Organisations need to stay open to new ideas in this evolving market. Our advice is to consult specialists able to develop imaginative procurement strategies that address contractor concerns while meeting project needs.
Construction industry vacancies
through 2024
Construction insolvencies
in Q4 2024
But the steady flow of high-profile business failures at the higher end of the supply chain makes this a particular area of concern.