The UK construction sector may be approaching the bottom of the current cycle, but recovery is likely to be uneven. While the pipeline of future work is strengthening in sectors such as commercial development and infrastructure, housing and some private sector markets continue to face affordability and regulatory challenges.

Recent data suggests that new build construction entered a technical recession in late 2025 after two consecutive quarters of falling output. However, forward-looking indicators such as project orders and investment pipelines suggest that activity could begin to recover during 2026.

Growth is expected to return gradually as project pipelines begin to translate into on-site activity. However, the pace of recovery will vary by sector, with infrastructure and commercial projects showing stronger prospects than residential construction.

The value of construction orders has increased in recent quarters, indicating that future workload is strengthening. However, delays in planning approvals, affordability constraints, and regulatory requirements are slowing the conversion of pipeline projects into active construction.

Construction cost inflation is expected to remain moderate in the near term due to soft demand and competitive pressure across supply chains. However, rising commodity and energy prices, labour shortages, and increased infrastructure investment could create renewed inflationary pressure as market activity strengthens.

Recent increases in metals prices, particularly copper and aluminium, are expected to affect specialist components such as electrical systems, cladding, and transmission infrastructure. While price hedging and supply chain dynamics may delay some impacts, sustained commodity inflation could increase costs for complex building and infrastructure projects.

The conflict in the Gulf Region is causing significant disruption to energy markets that will spill over into manufacturing supply chains. The Spring Market View forecast does not include a specific assessment of the impact of the War but includes a range of inflationary outcomes.

Based on optimistic scenarios of an early opening of the Straits of Hormuz, the flow of oil, gas and other cargoes will be disrupted for at least three to six months and potentially for longer. Construction materials are energy intensive but comprise only a portion of total construction cost. Prices could rise if manufacturers and specialists have the market power to pass on costs. In the 12 months after the start of the Ukraine War in 2022, when energy costs increased by four to five times, average material prices increased by 20%, a relatively small increase given the scale of disruption.

The residential sector continues to face significant challenges, including affordability constraints, regulatory requirements, and slower planning approvals. As a result, residential construction activity may remain subdued even as other sectors begin to recover.

There are early signs of recovery in parts of the commercial sector, particularly in prime office markets where vacancy rates are low and investment activity is increasing. However, recovery is likely to remain selective and concentrated in major cities.

Major programmes such as strategic highways investment, rail upgrades, water infrastructure investment, and defence spending are expected to provide significant future workload for the construction sector. These long-term programmes are likely to play an important role in supporting market stability during the recovery.

Public sector and regulated infrastructure investment will continue to be a key driver of demand. However, affordability constraints and procurement timelines mean that project delivery may progress more slowly than originally planned.