Cost pressures are rising again

Recent inflation data suggests that price pressures across the wider economy have eased. But the outlook has become more uncertain. Higher energy prices and disruption to global trade could still increase inflation in the months ahead.

Construction is also facing its own challenges. Labour shortages remain in some areas, manufacturers are producing fewer key materials, and logistics costs remain volatile.

Together, these factors are expected to keep construction inflation above CPI through the forecast period.

At the same time, competition for work remains strong. Many contractors are absorbing some cost increases rather than passing them on in full to clients. This is helping to keep tender prices lower than they might otherwise be.

We’ve reduced our forecasts for 2027 and 2028 slightly compared with our previous outlook. This reflects expectations of slower growth in construction activity over the coming years.

The picture is broadly similar across the UK, although there are some regional differences. Certain scheme types, such as build-to-rent, that can be difficult to make financially viable in London are gaining greater traction elsewhere in the UK, helped by lower land prices. Growing developer interest is supporting activity, while there is enough competition between contractors to keep cost increases under control.