TPI Survey Feedback

Workload

The UK construction sector is navigating a complex landscape, with a mixed outlook for workloads and tendering activity.

According to Glenigan data, project starts in 2024 rose by 20% year-on-year, driven by a 58% surge in ‘major projects’ (valued at £100 million or more). However, the total value of contracts awarded to main contractors fell by 4%, while detailed planning approvals fell by 19%.

The 19% decline in planning approvals is particularly concerning, as it signals a weaker future pipeline, with fewer projects advancing to construction-ready stages. This slowdown is likely due to a combination of regulatory delays—such as those associated with the Building Safety Act Gateway processes—viability pressures from high borrowing costs, and developers deferring projects amid fluctuating market confidence.

However, an acceleration in new orders could further strain tendering capacity, with a persistent shortage of construction workers potentially limiting contractors’ ability to take on additional projects – especially as the industry works towards the government's target of 1.5 million new homes by 2029.

Findings from our TPI Survey support these trends, with respondents reporting strong enquiry levels and a healthy forward pipeline, particularly in sectors like data centres, healthcare and infrastructure. However, client hesitation remains a key challenge. This caution is most pronounced in the residential and new commercial office markets, where projects face delays due to concerns over funding, planning approvals and tenant commitments. Economic uncertainty, public spending reviews and uncertainty surrounding the pace of interest rate reductions are contributing to delays and increased caution.

The sector remains buoyant in certain areas but constrained by delayed decision-making and slow project commencements. A significant volume of work remains on the periphery, yet uncertainty continues to impede progress. A more active project environment is expected in the second half of 2025, but this will depend on resolving key challenges.

Market Conditions

Market conditions have deteriorated in recent months, with viability concerns stalling project pipelines. Projects that do make it to tender are struggling with market undercapacity. Despite lower levels of overall activity, larger contractors remain busy with established schemes, leaving fewer firms available to take on new projects. As a result, the market is caught in a cycle of high costs, limited supplier capacity and increased risk aversion, which continue to hinder recovery.

Despite weaker market activity, construction inflation is expected to remain elevated, driven by labour cost pressures, persistent inflation in the general economy and high borrowing expenses. A slow start to the year is anticipated, with rising gilt yields (ie the interest on loans issued by the UK Treasury to raise money for public spending), tight financing and high debt costs weighing on investment decisions. However, supply-side constraints, rather than demand, will primarily drive inflationary pressures.

Higher tenant and investor expectations for ESG-compliant buildings are raising base specifications, further adding to cost pressures. The Building Safety Act and Gateway 2 approvals also continue to cause delays and compliance costs. While competition among lower-tier contractors may help moderate inflation, rising labour costs, pressure on MEP trade packages and insolvency risks continue to push prices up. Recent insolvencies have weakened supply chains, forcing firms to price in higher risk allowances, insurance and financial protections, limiting pricing flexibility.

Global factors are also contributing to uncertainty. Geopolitical tensions, trade policy shifts and fluctuating global demand are impacting supply chains and material costs. Conflicts, tariffs and currency volatility could disrupt supply, particularly for energy-intensive products like steel and cement. Ongoing shipping disruptions may compound these issues, creating additional inflationary pressures for UK construction firms.

Overall, market conditions remain uncertain, shaped by UK fiscal policy, global economic dynamics, and regulatory challenges. While inflation may ease by 2027-2028, labour shortages, capacity constraints and sustained public sector investment could prolong cost inflation if supply struggles to keep pace with demand.