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.
MACRO ECONOMIC CONDITIONS
Low levels of growth reflected in a tentatively positive outlook for the construction sector
The OBR’s latest forecast of 1.5% growth for UK GDP in 2025 – released on the day of the Autumn Budget – provides another example of the ongoing difficulties facing the economy, and the corresponding challenges for the government. The opinion of non-government bodies shows expectations of less than 1.5% growth.
Although in positive territory, the continuing minimal levels of GDP and construction volume growth certainly don’t depict a bustling economy showing signs of a price breakout, but they also don’t necessarily suggest imminent recession. However, with inflation still solidly outstripping the 2% target, the Bank of England remains on the horns of a dilemma as regards further interest rate cuts.
The Budget itself brought both highs and lows. The restatement of, and additional commitment to, infrastructure projects is welcomed, but the increase in the minimum wage rate will add to companies’ costs, and at a time when input costs are near to or outstripping tender price uplifts.
The OBR’s expectation for the general unemployment rate has slid up to 4.8% for 2025. In addition, according to the OBR, wages and salaries are forecast to have lifted by 6.9%, with a further 3.7% to come next year, all while these same tender price uplifts barely rise above 3% per annum.
Across the construction sector in the UK, this year has seen something of a modest revival in new work carried out, particularly in the second and third quarters of the year, being up almost 3% by volume compared to last year. However, over the whole year (October to September), total work figures are up only about 1.5% by volume, reflecting an expansion of output levels in the last six months.
Key economic forecasts
CONSTRUCTION PIPELINE PROSPECTS
Demand for infrastructure and non-housing projects behind uplift in new orders
Nationally, new orders for work show a not insignificant uplift of almost 6% by volume for the year to Q3 2025, as against the previous year. The major component of that change lies in the figures for infrastructure, up by over 31%. In the housing sector, however, new private housing, which is very labour-intensive and ordinarily accounts for around 20-25% of new orders, showed a downturn of 12% for the year.
The impact on housing numbers tells its own story of the challenges facing the government, with volumes impacted by general economic conditions and the impact of Building Safety Act gateways on investor confidence when viability may already be marginal.
Oddly, looking at the most recent six-month period, to September 2025, and comparing this year with last, shows the same near 6% uplift. Outwardly, that would suggest reasonable continuity, but of course the dispersion in the various subsectors tells its own tale.
Perhaps the clearest new work groupings lie in the non-housing sector, with an overall uplift of over 11.5% for the last year, and the infrastructure sector as noted above, which could be further enhanced by additional funding post-Budget. That said, the constraint on that expansion will lie in the application of planning frameworks and resource availability. Excess demand entering the marketplace could result in a yet unidentified potential for spiking of tender bids.
INPUT COSTS
Pressure on margins expected to continue as input costs continue to climb
BCIS’s General Building Cost Index currently shows an uplift of 3.91% for 2025, with a further 2.90% coming next year, notwithstanding the prospect of significant new work volumes potentially arising from the government’s moves in respect of infrastructure and housing. These figures significantly exceed the combined BCIS projected tender price uplifts of 2.60% and 3.02% respectively over the two-year period.
Input costs are not only being driven by wage inflation and increases to the minimum wage, but also by rises in material costs including steel (see Construction News article) and copper (see ABC News article), with raw copper reaching new highs over the last quarter.
RLB’s weighted average of regional tender price uplifts projects 3.17% and 3.27% for the years in question, compounding to somewhat closer to the input cost uplift, but still well below. The consequence of this data is that over 2025 and 2026, the expectation remains that the market will continue to experience margin pressure, as costs movements outstrip available margin.
It should be noted that the above are general statements about overall national cost and value figures, and in themselves lack granularity at any local level. However, adding the government’s reaffirmed spending commitments to the mix will help, but the key to unlocking better profitability for contractors and subcontractors will be the timing of the arrival to market of additional new work.
Moreover, the question of whether the location of new projects matches the location and availability of labour resources will drive how regional tender prices move.
TENDER PRICE FORECAST
Forecasts moderate slightly despite tender prices rising in line with contractors’ costs
This quarter’s RLB Tender Price Index forecast, which is weighted by ONS data for regional new orders volumes, shows a slightly enhanced overall outlook for this year compared to our forecasts in previous quarters.
Looking farther forward, the slight softening that we saw in the Q3 edition of Construction Market Intelligence has continued, though not to such an extent as to generate real concern. Tender price uplift figures through to 2029 remain between 3% and 4%, having been slightly trimmed.
Over the five-year period shown in the chart below, RLB’s tender price forecast uplifts currently outrun those of BCIS by an average 0.4% per annum. But the real story here is the fact that the BCIS Building Cost Index shows an almost identical five-year total uplift as the BCIS Tender Price Index, suggesting that contractors’ costs are rising in line with inflation of their pricing. Obviously, local circumstances vary, but overall, this alignment suggests continued tight tendering and compressed margins for the foreseeable future. Then, if workload expands, there may be opportunity for further expansion of tender prices.
Much depends on the route and progress to market of projects, and some could obviously be years away, as well as wider investment confidence in the economy. Policy interventions, including unlocking wider use of public-private partnerships (PPPs) and investment for devolved regions, may yet have a more significant impact at the extremities of our forecast window.
The OBR’s analysis of productivity accompanying the Budget on a sectorial basis included the impact of AI over a 10-year window. The continued adoption of AI within the construction sector may provide some respite for contractors that use it to improve productivity and unlock investment in a more challenging market.
RLB Tender Price Index uplifts published in CMI Q4 2025 vs published in CMI Q3 2025
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 for the year to September 2025 (ONS).
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