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Total UK construction output is forecast to fall by 4.0% in 2026, with 2027 only bringing a rise of 0.4%. That’s according to the latest Construction Products Association forecasts, released on Friday. This is a revision down from a fall of 3.3% expected in 2026 and a rise of 1.2% forecast for 2027 in Summer.
The worry that inflation will remain higher for longer is the likely culprit, especially with the increase in conflict in the Middle East in September and the subsequent rise in oil and energy prices. This will all affect confidence, spending, investment and project viability in early 2027.
Private housing, the largest construction sector, has seen both homebuyer demand and house building activity weaken since the Spring, in line with the increase in mortgage interest rates since the Middle East conflict. After an estimated 10.0% fall this year, output is now forecast to fall 3.0% in 2027.
Private housing repair, maintenance, and improvement (rm&i), the second-largest sector, has also suffered from higher inflation and interest rates, which are are expected to hold back activity. Basic repairs and maintenance activities have remained consistent throughout the year, and solar photovoltaic (pv), heat pump activity and fire safety remediation continue to grow but without some real confidence to underpin larger home improvements spending, this sector output is forecast to fall by 8.0% in 2026 and a further 2.0% in 2027.
In infrastructure, the third-largest construction sector, concerns have grown about potential pauses, delays, and cancellations of road projects as the government redirects finances to other priorities, such as social care and increased defence investment. Growth is still forecast, however, by 2.5% in 2026, down from 3.2% in Summer, and by 2.9% in 2027, down from 3.2% in Summer.
CPA Head of Construction Research, Rebecca Larkin, said: “Construction activity in the first half of the year was already lower than a year earlier, even before we started to see the pass-through effects of higher oil and energy prices in general inflation, construction cost inflation and mortgage interest rates. This, plus another period of oil prices over $100 per barrel, signals that inflation is going to be higher for longer and the lagged impact is now going to carry through much of 2027. Consequently, recovery that we expected to emerge in the second half of next year has now been pushed back, particularly in privately-financed sectors that are dependent on confidence and financing costs to commit to large spending decisions.
“The government’s announcement of the ‘Your First Home’ scheme provides an early sign that it is willing to step in and support demand in the housing market but more detail – and a start date – will be crucial to assess its benefit. However, with the Autumn Budget on 28 October, the government will also have to address its rising cost burdens on the house building and construction supply chains, which are increasingly making business more difficult, if we are to see significant progress on house building, more and better quality infrastructure, as well as the Net Zero transition, which will all be essential to driving UK economic growth and improvements in UK productivity.”
