The UK construction market faces many headwinds during 2026 and a number of sectors, including housing and commercial, are expected to contract. Long-term investment pipelines in infrastructure, utilities, healthcare, defence, and major public programmes continue to provide opportunities for growth, yet many projects are taking longer than expected to move from planning and procurement into delivery. As a result, the construction sector continues to operate as a multi-speed market, with stronger performance in public and regulated sectors offset by ongoing weakness in parts of the private development market.

The challenge facing the UK construction sector is not a lack of opportunity but the pace at which projects are progressing. Affordability pressures, procurement complexity, regulatory requirements, planning delays, and investor caution continue to slow the conversion of project pipelines into active workload. More recently, geopolitical uncertainty, including conflict in the Gulf and evolving global trade policies, has introduced additional risks around energy costs, inflation, and business confidence. Together, these factors are contributing to a slower-than-expected recovery despite significant long-term investment commitments across the construction economy.

Conflict in the Gulf has the potential to affect the UK construction sector indirectly through higher energy prices, increased inflationary pressure, and disruption to global supply chains. Rising oil and gas prices can increase manufacturing, transportation, and logistics costs, while heightened geopolitical uncertainty may influence investor confidence and capital allocation decisions. Although the full impact remains uncertain, prolonged disruption could contribute to higher construction costs and increased volatility in tender price forecasts, particularly if energy markets remain unstable or supply-chain disruptions intensify. Even if June’s peace agreement holds, oil and gas activity in the Gulf will not return to pre-war levels for a period of years, during which repair and reinvestment are undertaken.

All UK construction sectors saw a contraction in the new work pipeline in Q1 2026. Contractors in the infrastructure, industrial, and public-non-housing sectors were able to build a strong body of work through positive order intake during 2025, and these sectors are expected to perform relatively strongly this year.

Private-sector construction activity is expected to recover gradually rather than rapidly. Lower interest rates and improved economic confidence could help stimulate investment over time, but many developers and investors remain cautious amid ongoing uncertainty around inflation, energy costs, and future economic growth. While some sectors, including data centres, logistics, hospitality, and premium commercial developments, continue to attract investment, broader recovery across residential and commercial construction is likely to remain uneven throughout 2026.

Construction inflation remains relatively subdued compared with the volatility experienced during 2021 and 2022, largely due to slower-than-expected growth in workload across many sectors. However, inflation risks have become more uncertain during 2026. While affordability pressures and competitive bidding continue to place downward pressure on pricing in some parts of the market, contractors and clients are also monitoring potential cost increases linked to energy prices, supply-chain disruption, and geopolitical instability. As a result, forecast ranges for tender price inflation have widened to reflect a broader range of possible outcomes.

The UK is an open trading country with relatively low tariff barriers. Changes to steel tariffs taking effect in July 2026 are a significant change in trade policy. The changes involve a 60% reduction in quotas for 20 steel product categories and an increase in tariffs to 50%. The impact of the tariffs is likely to be an increase in the floor price of steel in the UK that will mostly affect products fabricated in the UK.