The UK construction market has recovered from the 2020-2023 downturn, but the growth outlook remains subdued and varies by sector, according to a new report from McBains
The consultancy’s latest industry report says competitive tendering is helping constrain price growth, but the UK construction sector still faces uncertainty from geopolitical developments, energy costs, volatile material prices, and persistent labour shortages.
The report says construction output is expected to grow by 1.8% in 2027, then 2.8% in 2028, before moderating to 2.3% in 2029 and 2.1% in 2030.
Residential and commercial will recover more selectively
Infrastructure, defence, healthcare, data centres, and public sector capital expenditure are expected to support growth over the next five years.
However, residential and commercial development is likely to recover more selectively, with affordability pressures, planning constraints, financing costs, and increasing regulatory requirements continuing to affect project viability.
Colin McCaffrey, director at McBains and leader of the team which produced the report, said: “The UK construction market is entering a more stable period beyond the disruption experienced between 2020 and 2023, but it is far from business as usual.
“Competitive tendering is helping constrain price growth, but the industry still operates against elevated energy costs, labour shortages, and persistent pressure on materials, affecting project viability and delivery.”
He added: “While there are challenges to contend with, there are also opportunities. Over the next five years, we expect infrastructure, defence, healthcare and data centres to offer important opportunities for the sector, alongside growing demand for retrofit, as building owners look to improve energy performance with pressure to meet sustainability objectives and protect the long-term value of their assets.
“Projects that are well funded, properly planned and supported by a robust delivery strategy will be best placed to navigate the uncertainty facing the industry. With programme delays increasing exposure to inflation, supply chain risks and market repricing, it is essential to get design approvals, procurement and delivery milestones right.”
Main highlights of the report
Highlights of the report include:
- Tender price inflation: the increase in prices for construction projects between the time a cost estimate is made and the time a tender is submitted because of fluctuations in material and equipment costs is expected to remain relatively moderate but persistent over the coming years, broadly around 3% to 4% annually. Inflation remains a consideration, but current levels are more manageable than between 2020 and 2023.
- Construction material prices increased by 5.9% in the year to July 2026, with materials for other new work rising by 7.2%. Continued material price volatility, particularly for steel, alongside geopolitical uncertainty and energy costs, remains a risk to project budgets.
- Residential remains the principal area of uncertainty, with affordability, financing costs, planning constraints and regulatory requirements continuing to affect viability. Commercial development is also expected to remain selective, with demand increasingly focused on prime, sustainable assets and refurbishment. The report forecasts private housing output to remain flat in 2027, suggesting that meaningful recovery is unlikely in the immediate term.
- London continues to face particular affordability and viability pressures, and planning approval rates also remain comparatively lower: data based on official planning statistics show an 82.5% approval rate in London, against 87% across England.
- Infrastructure investment is expected to provide one of the more resilient areas of the UK construction market over the next five years, supported by spending on transport, energy and other major projects such as data centres. Consequently, infrastructure output is forecast to increase by 14% between 2026 and 2031.
- The drive towards net zero will significantly influence the construction market over the next five years, with investment in retrofit and refurbishment projects expected to increase, particularly across commercial, healthcare, education and social housing.
- The other main risks to delivery are labour shortages, labour costs, planning delays, and utility capacity constraints. Industry estimates suggest an additional 40,000 workers per year will be required through to 2030 to achieve growth and meet government housebuilding targets.
“Looking ahead, we expect a gradual recovery rather than a rapid rebound. The divide between sectors is pronounced, with an encouraging outlook for infrastructure, defence and healthcare, which are predicted to benefit from significant investment. But affordability, material costs, and regulation keep residential constrained,” McCaffrey concluded
“Steel is one of the biggest near-term cost risks. Prices have risen sharply this year, and tighter import controls, the incoming Carbon Border Adjustment Mechanism, and volatility in energy costs make it harder for contractors to price with confidence. In this environment, a delay in procurement can have a direct impact on the bottom line.”
