UK construction faces rising costs and insolvencies, but signs of growth within the sector emerge

The UK construction sector enters the second half of 2025 with cautious optimism, driven by growth in infrastructure and housebuilding projects, despite ongoing economic uncertainties, labour shortages, rising costs, and geopolitical risks such as US tariffs and a global economic slowdown, say analysts.

According to AECOM’s latest market forecast for Q3 2025, the sector is showing early signs of recovery, particularly in housebuilding, with a forecasted 3 per cent rise in tender prices for 2025.

While this marks a slight slowdown from previous projections, it signals that the worst may be behind the industry, with tender prices anticipated to increase 4 per cent in 2026 and 4.5 per cent in 2027.

The construction output growth in Q1 2025 was largely driven by a surge in new work orders, up 26.6 per cent from the previous quarter, particularly in infrastructure projects such as HS2 and the Lower Thames Crossing.

However, repair and maintenance work continues to dominate, with new investment still lagging behind pre-pandemic levels but early pace indicators in private new housebuilding – up 1.4 per cent on the quarter, and public non-housing and industrial construction – up 11.9 per cent and 8.7 per cent, respectively – point to pockets of resilience.

Despite these positive signs, the sector faces several challenges.

Persistent labour shortages and rising wages have contributed to a 3.5 per cent increase in building costs, with inflationary pressures and regulatory challenges still affecting project viability.

Furthermore, construction company insolvencies have risen by 12.6 per cent in Q1 2025, highlighting ongoing financial strain within the supply chain.

Looking ahead, government-backed investments in housing, healthcare, and infrastructure, alongside a growing focus on clean energy, are expected to drive further growth, particularly in public sector projects.

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