A new report from design and consultancy firm Arcadis suggests that the UK construction market is experiencing a “turning tide,” with tentative signals of recovery despite ongoing economic challenges.
The “UK Construction Market View Summer 2025” report highlights a stabilisation in new construction opportunities and an expanding public sector workload, offering better prospects from 2026 onwards.
The first half of 2025 has largely been a “waiting game” for the construction sector, with many segments remaining “stuck” amidst renewed uncertainty from global conflicts and tariff disputes. However, the report points to early signs of change, including improving sentiment surveys, recent interest rate cuts, and a nascent recovery in the construction order book.
Key Findings from the Report:
- Economic Outlook: While GDP grew faster than expected in Q1 2025 (0.7%), this growth is not anticipated to be sustained throughout the year. Both the Bank of England (BoE) and the International Monetary Fund (IMF) have marginally increased their 2025 growth forecasts, but the overall outlook remains “positive but hardly exciting.” Inflation, as measured by the Consumer Price Index (CPI), rose to a 15-month high of 3.4% in April and May, leading markets to price in further interest rate cuts later in the year.
- Workload Recovery: Construction output showed a tentative recovery, growing by 0.5% in the three months to April, driven by a 0.9% increase in new-build work. Public sector non-housing and private industrial work were strong performers. While construction orders in Q1 2025 saw a significant quarter-on-quarter jump of approximately 27%, this was primarily due to infrastructure and private industrial new work, following two years of weak pipeline growth.
- Investment Markets: Commercial property delivered a positive total return of 7.7% in 2024, above the 25-year average. Investment volumes in retail, residential, and hotels all increased, with a record £6 billion forecast for the build-to-rent (BTR) sector in 2025.
- Contractor Performance: Leading contractors reported improving performance in 2024 compared to 2023, with many returning to profit. Infrastructure specialists are benefiting from increased spending in energy, water, and defence, though activity in highways and rail remains slower. The nascent recovery in housebuilding is also boosting some materials businesses.
- Public Sector Certainty: The Comprehensive Spending Review (CSR) and the accompanying 10-year Infrastructure Strategy (IS) provide crucial long-term funding certainty for public sector clients, particularly in defence, health, education, justice, and transport. This is expected to enable contractors and their supply chains to plan for future capacity investment.
- Labour Market: The construction labour force is stable, with a slight growth in Q1 2025. However, proposed changes to skilled migration routes will significantly increase the challenge of recruiting and training the workforce from within the UK.
The report concludes that while economic conditions remain tough, with sticky inflation potentially slowing interest rate cuts, the construction sector appears to be approaching an inflection point. Contractors are in a better financial and strategic position, and public sector clients, with their defined funding allocations, are better placed to act.
For a comprehensive understanding of the UK construction market’s outlook, you can download the full Arcadis UK Construction Market View Summer 2025 report here.
