Building costs will increase by a predicted 14% over the next five years to 1Q2031, while tender prices will rise by 15% over the same period, according to the latest construction forecast data from the Building Cost Information Service (BCIS).
Total new work output is forecast to grow by 12% between 2026 and 2031.
Dr David Crosthwaite, chief economist at BCIS, said: “Conditions in the UK construction sector at the start of 2026 were mixed, with some signs of improving sentiment before geopolitical developments unsettled energy markets and clouded the outlook.
“Industries such as construction are particularly exposed to such shocks given their reliance on fuel, transport and energy-intensive raw materials. As a result, the cautious optimism that characterised the early part of the quarter has increasingly been overshadowed by concerns over supply disruption and cost pressures.
“At this stage it remains too early to fully assess the economic implications. However, a prolonged period of elevated energy prices could sustain wider inflationary pressures and delay the pace of monetary easing. With interest-sensitive sectors such as residential construction already facing subdued demand, financing conditions will remain an important factor shaping activity over the coming months.”
The BCIS All-in Tender Price Index (TPI), which measures the trend of contractors’ pricing levels in accepted tenders, i.e. the cost to client at commit to build, saw annual growth of 2.8% in 1Q2026.
Dr Crosthwaite said: “Although the project pipeline has clearly increased during the first quarter of the year, there is reported difficulty converting the pipeline into activity, with the market quieter than it should be. The main reasons for this cited by the BCIS TPI Panel were the lack of readily available financing and contractors taking a firmer stance on contractual conditions during negotiations.”
On the input costs side, labour remains the primary driver of project costs. Skills shortages continue to prevail, with the TPI panel reporting that while labour availability is generally sufficient, there are particular issues in specialist trades, including sprinkler installation and facade works.
Total new work output increased by 1.8% in 2025. BCIS expects subdued growth in new work output through 2026 as residential and commercial sectors continue to struggle.
Dr Crosthwaite said: “The sector entered 2026 with some cautious optimism, but that has been tempered by recent geopolitical developments. Higher energy prices risk sustaining inflationary pressures and delaying any easing in monetary policy, which is critical for interest-sensitive sectors like housing.”
