The outlook is stabilising but fragile, with modest output growth in Q2 2025 offset by a slowdown in the rate of growth of new orders. London continues to underperform, particularly in housing, creating a drag on national recovery. Growth momentum is shifting toward public sector programmes, regulated utilities, and megaprojects, though conversion from pipeline to projects remains slow.

Construction activity shows mixed signals: Q2 2025 output rose 1.2%, but new work fell in June and the rate of order growth slowed after a strong Q1. London’s pipeline has contracted by nearly 30% annually, with housing starts and registrations at crisis levels. Sentiment surveys also highlight pressure: the Construction PMI dropped to 44.3 in July, signalling reduced demand.

Costs are unlikely to fall. The tender price forecast projects 2–4% inflation for buildings in 2025, rising to 4-6% for infrastructure. While materials inflation is subdued, labour costs and capacity pressures are keeping prices elevated. Clients moving high-density residential projects forward now may access competitive pricing, though these conditions are not expected to last.

This is normally due to a range of factors. Currently, construction inflation is labour-driven, with capacity issues becoming an increasing issue, particularly in specialist trades such as mechanical and electrical. Wage rates have also been high in comparison to other sectors, but recent wage deal agreements indicate a relative slowdown in pay rate rises this year, compared to the previous 12 months. Materials and energy trends are mixed: steel prices have eased, but metals overall remain 6–10% higher than recent lows and above long-term averages, while energy prices are flat.

UK housing activity is starting to pick up, with starts in the year to Q1 2025 up by 25% compared to the cycle low point in Q2 2024. However, despite unprecedented levels of support for the sector, delivery remains well behind government aspirations. The base rate cut to 4.0% in August 2025 has supported demand and national housebuilders report a 5–6 % increase in reservations in recent weeks. The number of mortgage approvals for house purchase recovered for the third successive month to 65,352 in July. However, the issue of affordability remains the key stumbling block.

The following factors play key roles in the UK housing market:

• Interest rates: The Bank of England’s base rate cut to 4.0% in August 2025 has supported buyer confidence and lifted reservation rates.
• Regional contrasts: While national registrations rose, London housing has collapsed, with registrations down 59% year on year and starts at just 2% of planning targets. This is the result of delays associated with the Building Safety Regulator and continuing viability problems.
• Government support: In addition to planning reform, the UK Government is introducing a raft of support for housing markets including an expanded Affordable Homes programme and a new state-backed mortgage guarantee.
• Short-term opportunity: Delays to high risk, multi-storey housing developments mean that in the short-term at least, pricing by the supply chain is very competitive. This will not continue once workload starts to recover.

The UK is seeing a shift of spending away from mega-projects like HS2 to a more regionally planned programme of investment. Mayoral Combined Authorities (MCAs) have been driving this transport investment through long-term City Region Sustainable Transport Settlements (CRSTS). The Transport for City Regions (TCR) programme, worth £15.6 billion, is set to expand investment further after 2027, including metro extensions, cross-city express buses, and active travel schemes. The programme management capability of MCAs will be a key contributor to the success of their investment plants.

CRSTS stands for City Region Sustainable Transport Settlements, a funding mechanism introduced in 2022. It provides Mayoral Combined Authorities (MCAs) with multi-year certainty to deliver long-term, strategic transport investment. Funding runs until FY 2026/27, supporting improvements in local networks, housing access, and regional connectivity. Delivery has been uneven, as MCAs build programme management capacity and balance priorities across multiple stakeholders. From 2027/28, CRSTS will transition into the larger Transport for City Regions (TCR) programme, unlocking £15.6 billion in expanded investment.