UK market intelligence: from power struggles to project strategy
Against a backdrop of slowing economic growth and tighter cost controls, the UK construction sector is facing an uncertain environment. While inflation has eased and interest rates are forecast to fall, the expected benefits from government strategies has yet to lead to immediate gains.
New orders are picking up, yet developers across sectors are increasingly grappling with a new constraint, power. Surging demand for electricity is placing huge pressure on the UK’s already-stretched grid infrastructure. In key regions, delays in securing grid connections are now a real and growing threat to project timelines.
As built asset investors navigate market trends where the cost and availability of power can outweigh traditional development hurdles, early-stage planning must prioritise electricity access as a strategic priority.
Economic overview
The UK’s economic performance offered mixed signals in the first half of 2025. While GDP expanded by 0.7 percent in Q1, a contraction of 0.1 percent in May points to weakening momentum.
Heightened global uncertainty, from escalating conflict in the Middle East to newly imposed US tariffs, is undermining business confidence and weighing on investment.
While inflation edged up to 3.6 percent in May, markets still anticipate a further two Bank Rate cuts this year, potentially reaching 3.75 percent. Falling borrowing costs may support development activity in 2026, but in the short term, higher employer National Insurance Contributions and cost inflation are putting pressure on margins.
Construction overview
Construction output was flat in Q1 2025, following three quarters of modest growth. Yet, beneath this, new work increased by 0.9 percent, driven by industrial and data centre expansion. Private housing also performed solidly, with a 3.3 percent year-on-year rise.
The government’s £39bn Affordable Homes Programme and long-term infrastructure pipeline offer strong structural support. New orders rose by 26.6 percent during the quarter. Infrastructure doubled thanks to major investment in water, energy and aviation. However, weakness in private housing orders could hinder housing targets.
One emerging constraint is electricity access. Grid connection delays in areas such as West London, Cambridge and Milton Keynes are impacting programme viability. The new ‘first ready, first connected’ system aims to prioritise shovel-ready projects, but may not deliver short-term relief.
Tender price inflation
While construction wage inflation eased to 5.1 percent in April, the full impact of increased NICs is still filtering through. Real estate Tender Price Inflation for 2025 is held at 3.0 percent, with infrastructure TPI at 4.5 percent, as we maintain our outlook from Q1.
Material price inflation remains subdued and insolvency levels have fallen modestly. Yet uncertainty around future labour costs, supply chain resilience and utility constraints are keeping pricing risk elevated.
Powering forward
The UK’s energy grid is fast becoming a critical pinch point. With electricity demand projected to double by 2050, securing a timely power connection now sits alongside planning and finance as a core project risk.
Government investment in nuclear and grid upgrades is welcome, but delivery timelines stretch into the 2030s. For project teams, early engagement on energy access, proactive connection planning and expert advice will be crucial.
As demand surpasses infrastructure, developers must shift to an ‘energy-first’ approach, because in today’s market, no power often means no project.
