As of spring 2025, the UK construction sector finds itself at a crossroads. Labour shortages, rising wage demands and structural demographic shifts are reshaping sector outlooks, creating an urgent need for long-term solutions.
Economic conditions are stabilising, and government-backed investment in infrastructure and housing remains strong. However, the industry faces an escalating workforce crisis that threatens both project timelines and cost stability.
Economic overview
The UK economy showed signs of resilience in early 2025. GDP grew by 0.1 percent in Q4 2024, surpassing expectations of a contraction. A 0.5 percent rise in construction output contributed to this performance, alongside modest growth in the services sector. However, industrial production declined by 0.8 percent, highlighting weaknesses in the manufacturing sector.
Inflation remains above target, with consumer price inflation (CPI) increasing to 3.0 percent in January 2025, driven by rising costs in education, transport and food. While material cost inflation has eased, wage growth in the construction sector remains a key inflationary driver.
The Bank of England’s third consecutive interest rate cut, lowering the Bank Rate to 4.5 percent, may provide some relief, but financial markets expect a cautious approach to further reductions.
Construction overview
Construction output grew by 0.5 percent in Q4 2024, marking the third consecutive quarter of expansion. However, sector performance was mixed.
Private industrial work grew by 6.4 percent, driven by demand for data centres, while public housing output declined sharply by 7.8 percent. Infrastructure activity remained flat but there are expectations of future growth from government-backed projects.
New orders fell by 2.4 percent in Q4, with notable declines in infrastructure and private industrial work. Conversely, private housing orders rose by 24 percent, signalling renewed confidence in residential development.
Looking ahead, the industry must balance strong demand with the challenge of securing the necessary workforce to deliver these projects.
Tender price inflation
Our tender price inflation (TPI) remains relatively unchanged from Q4, with real estate TPI forecasted at 3.0 percent for 2025 and infrastructure TPI rising from 4.5 to 5 percent.
While material price volatility has subsided, rising wage costs continue to pressure margins. Average weekly earnings in construction increased by 6.9 percent in the year to November 2024, and further upward pressure is expected as the National Living Wage rises to £12.21 per hour in April 2025.
Addressing the skills shortage: a sector-wide challenge
The construction sector’s most pressing issue remains its workforce shortage. The number of people employed in construction has declined by 10.8 percent since the pandemic, with an ageing workforce exacerbating the problem.
The Construction Industry Training Board (CITB) estimates that an additional 251,500 workers are needed by 2028 to meet demand. Without intervention, labour constraints will continue to drive up costs and delay critical projects.
A call for strategic workforce planning
With strong project pipelines and government investment providing a platform for growth, addressing workforce constraints must be the sector’s top priority. Employers, policymakers and industry bodies must collaborate to develop sustainable solutions that attract, train and retain the talent necessary to build the future.
Without decisive action, labour shortages will remain the defining challenge of UK construction in the years ahead.
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