The Construction Products Association (CPA) autumn forecasts, published today, see ‘cautious optimism’ returning to the industry.
Overall, total UK construction output is forecast to rise by 2.5% in 2025 and 3.8% in 2026 after falling by 2.9% this year.
This is a more optimistic outlook than just three months ago, when the CPA was forecasting 2.0% growth in 2025 and 3.6% in 2026.
The past 18 months have been challenging for the industry, particularly for its two largest sectors: private housing new build; and repair, maintenance and improvement (RMI).
In private housing, falls in interest rates and mortgage rates appear to be leading to a gradual recovery in demand. The CPA economists expect this to lead to better prospects for house-builders.
On the flip side, while the government has talked a lot about wanting to boost house-building and clearing planning constraints, fundamental supply issues remain the same, the CPA says. These include a lack of planning resources at the local authority level, nutrient and water neutrality issues and biodiversity net gain requirements. There also appear to be considerable delays in starting high-rise housing and some commercial buildings due to uncertainty over the Building Safety Act and a lack of capacity at the Building Safety Regulator.
There are also major issues with an ageing workforce and difficulties attracting new recruits.
Despite this, after a 9.0% fall in activity in 2024, private housing output is forecast to rise by 8.0% in 2025 and 7.0% in 2026.
Private housing RMI depends on consumer sentiment, real wage growth and people moving house, which drives an increase in home improvements. The expected recovery in the wider housing market, combined with improving consumer confidence and sustained real wage growth, is likely to boost RMI activity from 2025 Q2, the CPA says. In addition, there has been a shift in home improvement spending over the last two years towards energy-efficiency retrofit and solar photovoltaic work, which continues to remain strong, while building safety activity also provides a steady pipeline of activity. Overall, private housing RMI output is forecast to rise 3.0% in 2025 and 4.0% in 2026 after a 4.0% fall in activity this year.
The outlook for construction sectors outside of housing remains similar to three months ago, although, given that the government is the largest client in construction by far, accounting for almost one-quarter of all projects in the £180bn industry, this week’s budget could have significant implications for investment in health, education and infrastructure.
Infrastructure, the third-largest construction sector, is forecast to rise by 1.6% in 2025 and 3.8% in 2026 after falling marginally, by 0.4%, this year. Activity remains strong on major projects such as Hinkley Point C and HS2 despite concerns about persistent cost overruns. Long-term frameworks in regulated sectors such as rail, energy and water continue to provide consistent activity levels. However, outside of this, concerns remain. The CPA expects to see sharp increases in investment in the water industry to deal with quality issues, and an upturn in spending near-term has been announced, but this is unlikely to filter through to the construction industry before 2026, and thus may be insufficient to offset decreasing activity on the Thames Tideway as it finishes. Energy infrastructure activity, however, continues to go from strength to strength as wind farm activity ramps up again.
Commenting on the 2024 autumn forecasts, CPA economics director Noble Francis said: “Construction has suffered a very challenging period over the past two years, with sharp downturns in the two largest sectors, private housing new build and repair, maintenance and improvement. However, cautious optimism appears to be creeping back into the industry. Broader UK economic growth, helped by lower interest rates and sustained real wage growth, combined with a stable government, appears to be leading to improving consumer and business investment. However, the government’s Autumn Budget will be key to ensuring that this remains the case.
“There are significant upside risks to the forecasts if the new government can improve the delivery of house building and infrastructure. However, downside risks continue to prevail. The UK construction industry has lost over 10,000 firms in the last two years. ISG, the 6th largest construction firm, is the latest example, as high costs, project delays, and skills shortages on fixed-price contracts acutely affect the whole supply chain. In addition, concerns remain over whether the government will cut capital expenditure and pause, delay, review and cancel yet more investment in key infrastructure projects in the short-term to meet its fiscal rules. If so, falls in infrastructure activity could overshadow recovery in house-building and RMI.”
