Gradual recovery for construction output

The UK construction industry is set for a gradual recovery in output for the next two years, according to the latest forecasts from the Construction Products Association, which predict total construction output growth of 2.1% in 2025 and 4.0% in 2026.

The increase follows two challenging years that have particularly affected the private housing new build and repair, maintenance and improvement (rm&i).

In private housing – the largest construction sector – an uptick in mortgage interest rates at the end of 2024 is likely to limit housing market recovery and demand for new build housing in the first half of 2025. Much will depend on how quickly mortgage rates start to fall again and the impact this has on the house builders’ key Spring selling season.

Overall, private housing output is forecast to rise by 6.0% in 2025 and 8.0% in 2026 but the risks remain weighted to the downside, especially in the first half of this year.

An expected rise in home moves should drive home improvement projects in the second half of 2025, contributing to a rise in private housing rm&I output. Continued house price growth, should also help lead to private housing rm&i gradually increasing in 2025 and into 2026.

Spending on energy-efficiency retrofit and solar photovoltaic work remains strong and there will also be spending benefits from government schemes such as ECO4, the Great British Insulation Scheme and the Boiler Upgrade Scheme (BUS). Sector output is forecast to grow 3.0% in 2025 with a further rise of 4.0% in 2026.

CPA head of construction research, Rebecca Larkin said: “After a difficult couple of years, it is a welcome return to growth forecast for the construction industry in 2025 and 2026, although the recovery is set to be more gradual than in our forecasts before the Autumn Budget. With stubborn inflation meaning interest rates are unlikely to be lowered as much as previously expected, it adds fresh uncertainty to the point at which potential home buyers and existing homeowners will feel comfortable and confident enough to proceed with their largest spending decisions and get a sustained recovery in new house building and rm&i underway.

“This recovery is expected to occur in the second half of the year, combining with the current areas of growth such as energy-efficiency improvements, commercial refurbishments and energy and major infrastructure projects to establish a broader recovery across construction as the year progresses. The government will also play a key role in the industry’s longer-term recovery, through setting long-term funding allocations in the Spending Review in June, delivering construction programmes for new schools, hospitals and prisons, and maintaining promised levels of public investment within the bounds of its fiscal rule. As the government came to power on a statement that it was pro-business, pro-investment and pro-growth, the next few years will show whether this is true or whether it was merely rhetoric.”