As consumer prices in the UK show signs of stabilisation, the construction sector grapples with escalating tender prices.
- Arcadis maintains its 2025 inflation forecast but anticipates higher inflation for 2026 to 2028 due to resource constraints.
- A ‘K’-shaped inflation pattern emerges in the infrastructure sector, with varied price escalations across different areas.
- Construction material costs are on the rise again, hinting at potential market shifts.
- Despite optimism in the property sector, construction faces delays due to capacity constraints and slow project initiations.
As the broader UK economy sees consumer prices returning to more manageable levels, the construction industry faces distinct challenges, particularly with tender prices poised to rise. Arcadis, a key player in construction economics, has reported no adjustments to their inflation predictions for 2025; however, projections for 2026 through 2028 have been revised upward to 5-6% annually. This adjustment underscores ongoing resource limitations and the repercussions of procurement delays, which collectively reshape the future supply chain.
A notable feature of the current economic landscape is the emergence of a ‘K-shaped inflation trend‘ within the infrastructure sector. While some areas experience significant price hikes, others remain stable, creating an uneven inflationary impact across the industry.
Further exacerbating the situation, the recent surge in construction material prices reflects potential shifts within the sector. This increase follows a previous downturn, suggesting changes in market dynamics that industry stakeholders must navigate carefully.
Despite improving sentiments within the property sector, the construction sphere is still confronted with obstacles, particularly regarding the pace of new project launches. Factors such as the introduction of a new Building Safety regime and sluggish progress on commercial and public initiatives are expected to extend challenging conditions until mid-2025.
The ongoing strain on contractor capacity, especially due to commitments to protracted two-stage procurements, hampers market competitiveness. Consequently, clients face difficulties in hiring contractors, not due to a lack of interest but because qualified bidders are preoccupied with existing slow-moving projects. This situation mandates early engagement with potential contractors to mitigate short bid lists.
Construction’s outlook remains challenging due to projected inflation and resource constraints.
