Construction analysis
Progress, but not at pace
Output and new orders
Construction output:
+0.4% in Q1 2026
New work orders:
-10.5% in Q1 2026
UK construction output increased slightly in the first quarter of 2026, continuing a pattern of slow growth across the sector. Much of this activity came from repair and maintenance work rather than new project starts.
New work orders tell a different story. Orders fell by 10.5% during the quarter. This reflects continued caution among investors, developers and public sector clients. The S&P Global UK Construction PMI fell to 39.7, showing a slowdown in activity. Respondents cited weaker demand, fewer tender opportunities and longer development times.
This mirrors what we’re seeing across the market. Projects are still progressing, but often more slowly and with greater scrutiny at key decision points. Organisations face a number of challenges, including:
— geopolitical uncertainty
— a complex regulatory environment (including the Higher-Risk Building provisions of the Building Safety Act)
— constraints around power and utilities
— ongoing economic pressures
Where opportunity remains
Despite these challenges, there are signs of opportunity.
In the Spring Forecast, the government repeated its commitment to long-term investment across healthcare, transport, science and technology. There is continued funding for Scotland, Wales and Northern Ireland. While major programmes will take time to translate into activity on site, they provide a positive long-term pipeline for the sector.
Forecasts also point to stronger growth ahead. Experian expects construction output to grow by 3.4% in 2026 and 4.3% in 2027.
Growth isn’t expected to be evenly distributed across the market. The strongest opportunities are likely to emerge in the private industrial and commercial sectors, where output is forecast to increase by around 4.1%.
Growth outlier: Data centres
Demand for data centres continues to grow rapidly. But delivering these projects is becoming more complex.
Access to power is now one of the biggest constraints on growth. Limited grid capacity and long connection times are affecting where and how quickly projects can be built.
Skills shortages, rising energy costs and supply chain pressures are adding to these challenges. Data centres rely heavily on energy-intensive materials, including steel, copper and aluminium, all of which have seen significant price increases following the conflict in the Middle East. Based on current market trends and the impact of previous price rises, we forecast that data centre construction costs will increase by between 2.6% and 6.8% by the end of September.
In a competitive market, understanding these risks early is becoming increasingly important. Identify constraints, test options and put plans in place to manage risks at the start of a project. Those that do are more likely to maintain momentum and avoid costly delays later.
To keep projects moving, developers should:
Test site viability early – Assess power and grid access before making land or planning commitments. In many locations, energy availability is now a critical factor in site viability.
Engage suppliers sooner – Early engagement can help identify long-lead items, secure critical materials and components, such as transformers and cables, and reduce the risk of delays later in the project.
Use data to support decisions – Cost, programme and risk information should be used to compare options, test assumptions and build confidence in the approach.
Consider alternative delivery approaches – Phased and modular construction can help reduce programme risk and improve flexibility.
Build support early – Engage local authorities and communities from the outset. This will help identify concerns, strengthen stakeholder relationships, and reduce the risk of delays during planning and delivery.
In a fast-moving market, early planning is now a key competitive advantage.
What this means for organisations
While activity remains subdued across much of the market, there are opportunities in sectors supported by long-term demand and investment.
Focus on building confidence early in the project through robust planning, strong market engagement and evidence-based decision-making.
Those that prepare early will be best placed to take advantage of improving market conditions when confidence returns.
Materials and commodities
In the year to March 2026:
DB&T material price index for ‘all work’:
+2.6%
Steelwork prices:
+8.2%
Deliveries of several key building materials (bricks, cement, concrete):
All fell over the year to March 2026
Material cost inflation remains relatively low by recent standards. But the period of greater stability seen during 2025 may be coming to an end.
The conflict in the Middle East has increased energy costs globally, with a knock-on effect on construction materials. Several manufacturers have announced price increases, particularly for energy-intensive products. These are already taking effect and range from 5% to 10%.
Steel has been particularly affected, with prices rising by 8.2% over the past year. Other materials could face similar pressure if energy costs remain high or supply routes become limited.
At the same time, production and deliveries of several key materials have fallen. Brick production fell by 3.6% in the year, and block supplies were down 3.3%. This reflects slower construction activity across the market, but it also leaves less flexibility in supply chains if demand increases or disruption continues.
Getting ahead of the risk
While market conditions remain relatively soft, there are early signs that material cost pressures are returning.
Early engagement with suppliers is crucial. Understanding lead times, identifying critical materials and talking about rising prices can help project teams respond before issues affect programme or budget.
Where needed, organisations should also think about early ordering, alternative specifications and more flexibility in procurement strategies.
When conditions can change quickly, understanding the supply chain is becoming as important as understanding budget and programme. Access to global market insight can help organisations identify emerging risks earlier, understand what they mean for project delivery and take action before issues escalate.
Those that combine market intelligence with proactive planning will be better placed to manage uncertainty and maintain cost and programme certainty.
Procurement
Construction industry vacancies continue to fall quarter on quarter:
-13.0% in Q2 2026
The year-on-year fall being:
-38.7%
Construction insolvencies:
-1.0% in the 12 months to March 2026
The slowdown in construction activity is starting to influence procurement behaviour across the market.
On large capital projects, the most common procurement route remains two-stage procurement. Typically, this uses a design and build contract. But softer order books and increased competition for work mean contractors are looking for new ways to differentiate themselves.
As a result, we’re seeing more flexibility in how projects are procured and delivered.
Contractors are becoming more willing to offer greater cost certainty before committing to construction. In some cases, we’re seeing contractors offer not-to-be-exceeded sums as part of the first stage of a two-stage procurement process. While this is typically limited to projects where risks are well understood, it gives organisations more cost certainty earlier in the project.
Part of this shift comes from improving price stability across several trades. This is noticeable in the MEP services sector, where package inflation is no longer running significantly ahead of general building trades in some parts of the UK. Greater stability is giving contractors more confidence in pricing future work and, in some cases, taking on a greater share of risk.
Opportunities for organisations
For organisations delivering capital projects, this is an opportunity.
In recent years, much of the risk associated with inflation and market uncertainty was passed through the supply chain and ultimately back to clients. While this still happens, there are signs that the balance is beginning to shift.
Organisations should engage the market earlier, challenge traditional procurement approaches and work out where contractors may accept a greater degree of cost and delivery risk.
Those that take a collaborative approach and engage with the market early are likely to reap rewards. In a slower market, procurement is becoming more than a route to goods or services. It is a tool for managing risk, creating certainty and improving project outcomes.