Construction Activity to Contract 2.5% in 2026, According to CPA Spring Forecasts

CPA’s Spring Forecasts for UK construction output have been published today.

Conflict in the Middle East and its potential impacts on the UK economy and construction industry are expected to hit construction activity over the next 12-18 months. It appears increasingly likely that the second half of this year will see both a drop in construction demand and sharp cost increases, especially in the two largest sectors, private housing and private housing repair, maintenance, and improvement (rm&i). Construction output is now expected to fall by 2.5% in 2026 and although output is still expected to rise by 1.2% in 2027, the risks remain heavily on the downside. This is a sharp, unprecedented downward revision to the CPA’s forecasts since the Winter forecasts, driven by the potential impact of global events.

Private housing is the largest construction sector. After persistent rain affected activity in January and February, March and April saw stronger activity with house builders eager to build out to meet demand for homebuyers who had mortgages approved before the recent increase in mortgage rates since the conflict. This is likely to be the case until July and the key concern is what happens to demand as these higher rates are factored into purchasing decisions, especially as affordability in areas of the country with higher house prices was already a key constraint for house builders. In addition, house builders will have to contend with sharp cost increases that will exacerbate site viability issues, which were already a major problem for house builders in lower-priced parts of the country. Overall, private housing output is forecast to fall by 7.0% in 2026, from an already low level, and remain flat in 2027.

Private housing repair, maintenance, and improvement (rm&i) is the second-largest construction sector, covering small projects across the 28 million existing stock of homes across Great Britain. Activity was already subdued in 2025, due to the high degree of uncertainty over who would bear the brunt of tax rises in the government’s Autumn Budget and many homeowners chose to focus on saving rather than discretionary spending on home improvement projects. Homeowners are also expected to adopt a ‘wait-and-see’ approach over the next 12-18 months as they see household bills and the cost of home improvement projects both rise. This fall in demand may be partially offset by homeowners investing in energy security and energy efficiency, especially among those currently using oil-based heating, and by government-funded programmes such as the Warm Homes Plan, which includes significant long-term investment in areas such as solar PV and heat pumps. However, even here, the sector will also be adversely affected by the government ending other energy-efficiency programmes such as ECO4 and ECO+ with no replacements. Overall, private housing rm&i output is forecast to fall by 8.0% in 2026 and remain flat in 2027.

The Marketing to Contractors & Housebuilders feature (which is sponsored by South East Construction Expo) in the Sectors section of our Directory provides an overview of the sector, including details of its various media channels and events, together with access to our downloadable database of those with responsibility for procurement at key firms.

There is still expected to be significant growth in infrastructure, the third-largest construction sector, given longer-term existing contracts, pipelines of activity and funding in place for future projects. This is particularly the case in energy generation and distribution work, as well as in the water sub-sector. In rail, work continues on existing HS2 contracts, but there is rising concern about new contracts after these finish, due to the government’s delayed HS2 cost-saving ‘reset’. Furthermore, road investment remains subdued and is expected to fall further due to capital expenditure cuts in the delayed new Road Investment Strategy five-year spending plan. Overall, infrastructure output is forecast to rise by 3.2% in 2026 and 3.4% in 2027.

Commenting on the Spring Forecasts, CPA Head of Construction Research, Rebecca Larkin, said, “At the start of this year, there was a degree of cautious optimism over the outlook for construction activity in 2026 and 2027 across most sectors. However, this has been replaced by stark concerns over global factors and oil and industrial energy cost rises, leading to a spike in inflation. The direct impact on construction will be double-digit construction product price inflation, especially in oil-based products and energy-intensive products, where UK industrial energy prices can account for up to one-third of total costs for manufacturers. Indirectly, however, increases in inflation across the economy will also hit confidence and spending or investment from potential homebuyers, homeowners, businesses, clients and investors. As a result, the largest construction impacts over the next 12-18 months are likely to be on private housing and private housing rm&i.

“Public and regulated sectors are expected to be less affected by rising costs due to strong pipelines of activity in some areas, such as energy and water infrastructure. In addition, infrastructure clients may be more understanding of sudden cost rise issues. However, if not, these sectors may also suffer from project viability issues and contractors’ unwillingness to sign up to large projects in an uncertain cost environment, given the increasing risk.

“Risks to the forecasts are heavily skewed to the downside, given the uncertainty over the extent of cost rises and their impacts on confidence, spending and investment. However, there are potential upside risks if the government provides stimulus for house building and home improvement. In addition, the government may help construction by reducing its extensive list of cost burdens on the industry, which are set to increase further near-term given the government’s new 50% import tariff on steel products in July, its Building Safety Levy in October and its Future Homes and Building Standards from March 2027.

“Clearly, as with all current economic forecasts, the CPA’s latest forecasts depend heavily on how long the global disruption and high oil and energy prices stemming from the Middle East conflict last, which remains highly uncertain. Even if the disruption were to end today, a degree of damage has already been done, given the adverse effects of spikes in oil, industrial energy and product manufacturing costs. The CPA assumes four months of disruption, with lagged impacts over the next 12-18 months that culminate in an overall decline in construction activity.” 

Keep up to date with construction sales and marketing news.
Register for our free monthly newsletter:

Subscribe on LinkedIn