The UK's construction market continues to face weak activity, rising costs and increasing uncertainty. Yet opportunities remain for projects that can demonstrate viability, secure funding and engage the supply chain early.
Our Economic overview
The UK economy has proved more resilient than expected, with GDP growth reaching 0.5% in Q2 2026, despite geopolitical disruption and persistent inflationary pressures.
However, this resilience is not being reflected consistently across the construction industry. While major infrastructure programmes, energy projects and data centres continue to attract investment, commercial and residential development remains constrained. Viability challenges persist and confidence remains subdued.
Construction new orders have fallen by 18.1% over the past year, suggesting that overall activity will remain under pressure. Yet contractors are not necessarily competing more aggressively for work.
Lower construction activity doesn't automatically mean lower costs or greater contractor appetite. Increasingly, projects need to demonstrate certainty, viability and a clear route to delivery.
“The challenge is no longer simply whether projects can be funded, but whether they are sufficiently prepared to attract investment and secure the right supply chain partners.”
Input cost analysis
Despite subdued construction activity, material cost pressures are increasing.
Construction material prices rose by 6.4% on the year to August 2026, driven by steel tariffs, geopolitical disruption and higher energy costs. The introduction of the UK's Carbon Border Adjustment Mechanism in January 2027 is also creating further uncertainty around future material pricing.
Labour inflation remains relatively muted, but underlying skills shortages have not disappeared. With the construction workforce still approximately 10.0% smaller than before the pandemic, increased activity in infrastructure and specialist sectors could quickly intensify competition for resources.
These pressures are particularly evident in the MEP market, where contractor selectiveness, design quality and risk allocation are increasingly influencing tender returns.
“In today's market, cost pressures are no longer driven by construction demand alone. Global commodity markets, regulatory change and supply chain behaviour are playing an increasingly important role.”
For clients, understanding the specific pressures affecting individual projects, rather than relying solely on headline inflation figures, will be essential to managing costs and protecting viability.
Our Tender Price Inflation forecast
Our latest forecast anticipates tender price inflation of 3.75% in both 2026 and 2027 for UK real estate, whilst infrastructure tender price inflation is expected to remain higher, at 5.25% in both 2026 and 2027, reflecting continued cost pressures and strong demand across major programmes.
However, the relationship between construction output and tender pricing is becoming increasingly complex. While weaker demand is helping to restrain inflation in some sectors, rising material costs, specialist capacity constraints and a more risk-averse supply chain continue to create upward pressure.
Importantly, inflation is only part of the cost challenge. Changes in specification, regulation, procurement strategy and contractual risk can all increase project costs beyond headline tender price inflation.
“Moving projects forward depends on understanding which cost pressures are outside our control, and taking action on those we can influence.”
Early market engagement, mature design information, clear scope and balanced risk allocation can help clients secure stronger contractor interest and more predictable pricing outcomes.
London market insight: bridging the delivery gap
Our UK market insight report now also includes a dedicated London market analysis, providing a closer look at the opportunities and challenges shaping development in the capital.
London reflects many of the pressures facing the wider UK market, but its greatest challenge is, increasingly, one of delivery rather than demand.
Demand for high-quality office space and new housing remains strong, yet planning constraints, financing costs and development viability continue to limit progress.
Refurbishment now accounts for 46.0% of London's construction pipeline, as developers seek faster routes to market and opportunities to improve existing assets.
The London analysis reinforces a central finding of our national report: market conditions alone do not determine whether projects progress.
Explore our latest UK market insight report, including our dedicated London analysis, to understand the trends shaping construction activity, input costs and tender pricing.
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