EXECUTIVE SUMMARY
A national perspective on market trends and activity in UK construction
In the Executive Summary, we present and discuss national statistical data alongside our tender price forecast data to give a detailed overview of construction activity and market sentiment within the context of the wider UK economy.
⏱ 8 min read
MACRO ECONOMIC CONDITIONS
Outlook more challenging with slower growth and higher inflation than previously forecast
The macroeconomic position for 2026 has seen a meaningful negative change from previous reporting, although it is important to note that the OBR’s latest forecasts are still based on data published in March 2026. As such, they do not yet fully reflect the crisis in the Middle East and the resulting impact on inflation and growth expectations.
While the OBR continues to forecast UK GDP growth of 1.1% for 2026, more recent projections from other institutions indicate a weakening outlook. The OECD has revised its forecast down from 1.2% to 0.7%, while the IMF has reduced its expectation from 1.3% to 1.0%. This downward trend suggests that the already modest growth anticipated for the UK economy may soften further as external pressures take hold.
Inflation forecasts have moved sharply in the opposite direction. Consumer Price Index (CPI) expectations for 2026 have been revised upward by both the OECD and IMF, now sitting at 4.0% and 3.2% respectively. This reflects increasing concern around sustained inflationary pressures, driven in large part by energy market volatility and rising input costs linked to geopolitical instability.
Labour market indicators are also showing signs of strain, with unemployment forecasts increasing from previous estimates, most notably by the IMF. At the same time, there is a growing likelihood that wage and salary expectations will remain elevated or increase further if inflation persists at higher levels than previously anticipated.
Taken together, these revisions point to a macroeconomic environment that is becoming more challenging, with slower growth and higher inflation than previously forecast. With updated OBR data not due until June, there is currently a degree of lag in the official UK outlook. However, based on emerging trends, it is reasonable to expect future revisions to reflect downward pressure on GDP. This will be set alongside an upward movement in inflation and wage growth, driven largely by continued uncertainty in global markets and the ongoing impact of the Middle East conflict.
Key economic forecasts
CONSTRUCTION PIPELINE PROSPECTS
Fragile Q1 figures point to a construction market stabilising rather than expanding
While our previous report focused on full-year 2025 ONS data, this edition considers the most recent quarterly position, comparing Q1 2026 with Q4 2025. This indicates a reduction in the volume of new construction work completed in the first quarter of 2026, suggesting a slower start to the year than typically expected.
In contrast, refurbishment and maintenance activity has shown resilience, increasing by 3.4% over the same period. ONS data highlights that four of the nine key construction sectors grew in Q1 2026, including private housing repair and maintenance, which helped to offset weaker new build output. As a result, total construction activity remained only marginally higher than in Q4 2025. Given that the final quarter of the year often reflects a seasonal slowdown, this relatively flat position points to some underlying fragility in market activity.
New orders volumes have also declined compared to the previous quarter, which is notable given that Q1 would usually deliver a degree of pipeline uplift. This may reflect continued client caution and delayed decision-making.
There are, however, signs of short-term improvement. Construction output in March 2026 rose by 1.5%, exceeding the levels seen in each of the preceding three months, suggesting a degree of year-end momentum. Nevertheless, the annual rate of output growth remained subdued in the 12 months to March 2026, reinforcing a picture of stabilisation rather than expansion.
INPUT COSTS
Rising input cost expectations driven by geopolitical pressures
Input costs, as measured by the BCIS General Building Cost Index (GBCI), have been revised upward for 2026, increasing from the previously anticipated 2.7% to 3.87%. This change reflects evolving market conditions since our last report, with events in the Middle East driving renewed volatility in energy markets and material supply chains. The timing of previous published data (March 2026) means that earlier projections did not fully capture the impact of these recent developments.
Looking ahead, GBCI is forecast to moderate to 2.46% in 2027, bringing it closer to the BCIS Tender Price Index over the same period. Beyond this, from 2028 onwards, input cost inflation is expected to fall below tender price inflation, potentially easing some of the sustained pressure on contractor margins seen in recent years. However, this shift appears to represent a delay in market recovery, with what was previously anticipated for 2027 now likely to occur a year later.
The upward revision in costs continues to be driven by a combination of global and domestic factors. Ongoing geopolitical instability is contributing to increased demand and pricing for key raw materials, while uncertainty around the trajectory of the Middle East crisis is making forward planning more challenging. At the same time, updated OBR data indicates that wages and salaries are rising more sharply than previously expected, reaching 5.3% in 2026 and 4.9% in 2027. This reflects inflation remaining elevated for longer than anticipated, adding further pressure to construction costs.
Wider economic indicators also point to a more subdued recovery than previously forecast, with GDP growth for 2026 currently estimated at 1.1%. While some of this data may be subject to revision, it reinforces the view that market stabilisation has been pushed further out, with cost and pricing pressures likely to persist in the near term.
TENDER PRICE FORECAST
Higher tender price inflation forecast influenced by Middle East volatility
RLB’s Tender Price Index forecast for 2026 has been revised upward to 3.98%, a notable increase from our previous quarter’s forecast of 3.45%. This uplift reflects a shift in market conditions over recent months, particularly following the crisis in the Middle East. The Q1 2026 edition of Construction Market Intelligence was published shortly after this began, and the full impact on energy markets, input costs and contractor pricing has since become clearer.
The revised position aligns with emerging cost pressures observed across key materials and supply chains, as well as a risk aversion among contractors. This has led to a higher inflation trajectory not only for 2026 but also into 2027, where RLB currently forecasts tender price growth of 3.83%.
In comparison, BCIS data indicates a lower trajectory, with tender price inflation forecast at 3.17% for 2026, and 2.60% for 2027. However, it is important to note that the latest BCIS Tender Price Index was published in March 2026 and is therefore based on data that predates the most recent market movements. As such, it is likely that these figures have yet to fully reflect the impacts seen over the last two to three months.
As with previous reports, our figures represent a weighted UK average based on regional new orders data. While this provides a consistent national picture, our regional analysis highlights notable variation across the country. Differences in sector activity, local demand and contractor appetite mean that tender price movement will continue to vary significantly by location. Our regional experts remain best placed to interpret these localised trends and their implications for project pricing.
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RLB Tender Price Index uplifts published in CMI Q1 2026 versus published in CMI Q2 2026
The chart above shows an average of RLB's regional tender price forecasts for the respective years, weighted by regional new orders volumes of workload (ONS, May 2026).
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