THE Construction Products Association’s (CPA) autumn forecasts show that higher oil and energy prices are expected to keep inflation and lending rates higher for longer than previously anticipated.
Consequently, construction growth forecasts have been revised down for 2026 and 2027, with the largest impacts on demand in the two largest sectors: private housing new build and repair, maintenance and improvement. Total construction output is expected to contract by 4% in 2026 and rise by only 0.4% in 2027. 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 CPA said housebuilders continue to report activity has weakened since spring, in line with the increase in mortgage interest rates due to conflict in the Middle East. Further rises in mortgage interest rates from September, combined with higher oil and energy costs, are likely to worsen affordability on the demand side and costs and site viability on the supply side over the next 6-9 months.
Private housing repair, maintenance, and improvement is the second largest construction sector and spending on major home improvements is another area where higher inflation and interest rates are expected to constrain activity as homeowners focus more on saving or funding higher-priced day-to-day spending. Sector output is forecast to fall by 8% in 2026 and a further 2% in 2027.
Rebecca Larkin, CPA head of construction research, 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.
“There are areas of growth within the forecast, including energy distribution, data centres, water infrastructure, commercial refurbishment and fit-out, general energy-efficiency improvements and public building programmes, but rising costs over the next 12 months will be a key consideration as projects move forward. Viability has risen up the risk list across construction, particularly in housebuilding, highlighting that supply-side constraints are as big an issue as weak demand.”
