THE Construction Products Association’s forecast for sector output has been downgraded in its summer forecast, due to the lagged impacts of the Middle East conflict that are starting to pass through to both the demand and cost sides of the UK economy.
UK construction output year-to-date so far in 2026 has already fallen by 1.6%, according to the ONS, and is now expected to fall by 3.3% overall in 2026. This fall is due to activity weakening in private housing new build and private housing repair, maintenance and improvement during the second half of the year.
Output is still expected to rise by 1.2% in 2027, but the CPA said the risks remain heavily on the downside.
Housebuilders have started to report that buyer demand has weakened in recent months in line with the increase in mortgage interest rates since the Middle East conflict. Private housing repair, maintenance, and improvement (rm&i) is the second largest construction sector. The CPA said basic repairs and maintenance activities have largely continued as usual, but there has been ‘limited activity’ in home improvement projects.
There is still expected to be significant growth in infrastructure,, given longer-term existing contracts, pipelines of activity and funding in place for future projects. Overall, infrastructure output is forecast to rise by 3.2% in 2026, unchanged from spring, and by 3.2% in 2027, a marginal revision down from 3.4% in spring.
Rebecca Larkin, CPA head of construction research, said, “Construction activity so far this year is already lower than a year earlier and there is still considerable concern that we are yet to see the key impacts of cost inflation on projects down on the ground or the extent to which it affects appetite for signing up to or starting new projects. The biggest questions are how rises in construction costs, financing costs and the cost of living will affect the privately-financed sectors of private housing, private housing rm&i and commercial. Consequently, these sectors are forecast to experience the largest falls in output over the next 12-18 months.
“Even in areas where we forecast growth, there is an increased risk that rising cost inflation eats into the volume of construction work, even if the values of work are maintained. In addition, this rise in construction costs runs alongside the government’s imposition of 50% import tariffs for imported steel since 1 July 2026 and the prospect of even higher financing costs if the Bank of England raises interest rates, which make worsening viability a key barrier for new projects to progress.
“The arrival of the new prime minister emphasises that the new government will have to focus on enabling house building and construction demand, as well as focus on reducing cost burdens on the whole construction supply chain if it is serious about pledges for more new homes, more and better quality infrastructure and the net zero transition. This is a pressing issue as essential capacity and skills have been lost in the last two years and this will only get worse as activity falls over the next 12-18 months.”
