UK economic analysis
Reading the road ahead
The UK economy remains fragile after the recent budget. Growth is subdued, inflation is still high, and the government faces a tough balance between investing for the future and reducing debt.
The government continues to promise supply-side reforms to boost growth. These include planning changes, energy initiatives and public infrastructure. But so far, we’ve seen no real increase in construction. Big schemes like the New Hospital Programme are still in early phases, with new delivery models taking time to bed in.
GDP grew by just 0.1% in the three months to September 2025. Productivity also fell 1.3% in Q2. Every 0.1% drop in productivity could add £7 billion to borrowing, according to the Institute for Fiscal Studies (IFS).
Inflation is 3.6%. It’s likely to stay elevated due to energy prices, wages and currency pressure. The Bank of England held interest rates at 4.0% in November, with a small cut possible in late 2025. This could help lift construction activity in early 2026.
What this means for the construction sector
Skills shortages are limiting delivery
Low growth and limited investment have made it harder for contractors to hire and train. Overseas labour isn’t as accessible as before. Engaging with the market early is key to gaining access to the right skills at the right time.
Cost and planning risks remain high
Inflation and borrowing costs continue to affect viability. Careful budgeting and flexible procurement are essential. Those involved in planning and delivering projects need imaginative advice, supported by solid data, to navigate uncertainty and move forward with confidence.
Now may be a good time to build
The government is focused on delivery across its five-year term. Projects now in planning will move on site later in the cycle. For those ready to act, this period offers real advantages. Material prices are stable. Contractors have capacity. These conditions may shift as large-scale housing, energy and infrastructure programmes move into construction.
Global outlook
Global pressures, local impact
International trends are shaping UK project risks
The International Monetary Fund (IMF) forecasts global growth at 3.2% in 2025 and 3.1% in 2026. This is slightly better than expected, but still below the long-term trend of 3.7%.
Rising protectionism and global fragmentation remain key risks. These pressures are making organisations more cautious and reducing investment.
Labour markets are tightening, particularly in sectors like construction that have long relied on international workers. This demand for skilled workers is contributing to inflation, which is set to stay at 4.7% in 2025 before easing to 3.7% in 2026.
In the UK, these global pressures are shaping local outcomes. Supply chain disruption and shifting investor strategies continue to affect delivery. Recent decisions by MSD and AstraZeneca to pull investments show how global factors now drive UK risk.
But there are bright spots. The UK attracted $4.5 billion in private AI investment in 2024, ranking third globally behind China and the US. A £31 billion technology pact signed in September will fuel more data centre development. Over time, AI will boost productivity in construction and beyond.
What this means for project stakeholders
Global trends are shaping local project risks. Access to materials, labour and funding is being reshaped. Project plans must reflect this.
AI can boost productivity, but only with the right conditions.
AI has the potential to improve performance in construction. But it isn’t just about technology. As our recent research shows, progress depends on strong leadership, clear goals and a culture that supports change.