UK economic analysis
Improving conditions, fragile confidence
The UK economy started 2026 more strongly than many expected. GDP grew by 0.6% in the first quarter. Annual growth reached 1.4%. Productivity improved. Inflation continued to fall and the Bank of England held interest rates at 3.75%.
But confidence is fragile.
The conflict in the Middle East has created fresh uncertainty. And this is likely to remain despite a peace deal being reached. The spike in energy prices and disruption to global trade is putting pressure on inflation and risks slowing further progress. Domestically, the markets are watching the labour leadership contest and trying to establish how the outcome might change the investment landscape.
Taking this all into account, the OBR expects growth to slow slightly in 2026 before recovering in later years. Inflation is forecast to move closer to the Bank of England's 2% target in the medium term, although much depends on events in the Middle East.
A mixed outlook for construction
The government's commitment to long-term infrastructure investment, including the New Hospital Programme and transport schemes across the North and West Midlands remains positive. But major programmes take time to move from announcement to delivery, and uncertainty could slow progress further.
There are signs of activity returning in parts of the private sector. In our last report, we said that interest rates falling below 4% could act as a turning point for investors. Early evidence shows this is starting to happen. Demand for high-quality office space is driving investment in commercial development, while the hospitality sector is becoming more active. Residential development remains challenging.
Building confidence through better decisions
In uncertain markets, organisations need to rethink how projects are developed.
The traditional approach is often linear. Teams move from one stage to the next, with different specialists joining as needed. Decisions are driven by programmes and deadlines, with each stage completed before the next begins.
We suggest a different approach.
Bring key stakeholders together earlier, including designers, contractors and the wider supply chain. Start by focusing on what you’re trying to achieve, then explore the different ways of getting there. Early collaboration also supports a fair allocation of risk, making projects more resilient to market volatility and reducing the potential for disputes as conditions change.
Testing options early is key. Doing this at the start of a project builds a stronger evidence base and helps you understand cost, programme and delivery risks before major decisions are made.
Data is now integral to this process. Decision-makers want to base choices on evidence rather than assumptions. Technology can help. Benchmarking platforms allow organisations to compare projects against similar schemes. Tools such as Power BI dashboards provide real-time visibility of performance and support faster analysis of different options.
By combining data, technology and practical experience, organisations can make better decisions and move forward with greater confidence.
Taking time upfront to save time later
We recently supported a major hospitality refurbishment programme where the client needed to sign a development agreement with a fixed budget and completion date.
Ahead of our client signing the agreement, we recommended a 30-day review of the project. This included surveys, technical checks and an early cost estimate to make sure the budget, programme and project brief were realistic before any commitments were made.
We then brought the contractor into the process early to test the phasing strategy and validate the budget.
This gave the client confidence that the project objectives could be met, while ensuring the wider team was aligned from the start.
By spending time upfront building a stronger evidence base, the project started with clear parameters around cost, programme and delivery. The result? It remains on track to complete within budget and programme.
Global outlook
Global pressures, local impact
International trends are shaping UK project risks
Many of the materials, products and equipment used on UK projects depend on complex global supply chains. When energy markets, shipping routes or international trade are disrupted, the effects are often felt quickly.
The International Monetary Fund (IMF) expects global inflation to rise to 4.4% in 2026, driven largely by higher energy costs and supply chain disruption. Even if tensions continue to ease in the coming months, these pressures may take longer to work through the global economy.
For project teams, the challenge is dealing with uncertainty.
Lead times can change quickly. Material availability can tighten. Suppliers may face new cost pressures with little warning. These risks are hard to predict. Building resilience into projects is the best way to cut their impact.
Building resilience into projects
The industry has faced similar challenges before.
We can take lessons from Covid-19 and the energy price spike brought on by Russia's invasion of Ukraine. Engage suppliers early, understand vulnerabilities in the supply chain and avoid relying on a single source of supply where possible.
Organisations should also think flexibly about what products they buy, how they buy them and how they deliver projects. Adapting quickly can help reduce the impact of disruption when market conditions change.
In an increasingly uncertain world, resilience is becoming a critical part of successful project delivery.