Q2 2024

Our Forecasts


Many in UK construction continue to wait with bated breath for a much hoped for fall in interest rates. With development viability considerations still front and centre, a reduction in financing costs may be the key to unleash demand and move projects out of their current holding pattern.

High interest rates and elevated construction costs have made it difficult for development appraisals to stack up. This is reflected in subpar new order growth and slowing output levels on site. With construction input price inflation softening and a steadier economic outlook emerging, borrowing conditions are, for some, the last remaining barrier. The lag between Bank of England rate cuts and the availability of debt finance in the market suggests the construction industry’s problems won’t be resolved overnight. However, the initial rate cut could serve as an early indicator of a nascent recovery.

Election-related uncertainty and poor weather have stalled construction activity in recent months. Ongoing geopolitical tensions, with the potential to stoke further price pressures, have also caused some hesitation. However, sentiment in the industry appears to be improving. After lingering in negative territory for six months, the latest PMI reading consolidated its recent return to growth. Improved demand prospects stemmed from increased workloads and business optimism.

While a recovery is not yet guaranteed, there have been some positive developments. Softer construction cost inflation, improving contractor capacity and a growing focus on and investment in improving the carbon/energy credentials of buildings are all encouraging. The Bank of England has also signaled that it is “edging closer” to cutting borrowing costs, contingent upon sustained low inflation. This sets the stage for a prospective recovery, possibly emerging later this year or in early 2025.

Against this backdrop, we forecast UK tender price inflation will remain below the long-term average this year, standing at 2% across all regions. However, there are several upside risks. Spiking costs in MEP and concrete packages are being closely monitored, along with ongoing labour rate pressures, although these are lessening as capacity improves. Heading into 2025, with the election concluded and project funding facilitated by lower interest rates, we may see upward pressure on tender prices as contractors contend with higher demand. Consequently, we anticipate tender prices rising to 2.25% in 2025, as they gradually edge closer toward the longer-term average.

All forecasts in this report take account of all sectors and project sizes as a statistical weighted average, indicating an overall trend in pricing levels. It should be remembered that individual projects may experience tender pricing above or below the published average rate, reflecting the project specific components and conditions.


Having emerged from a shallow, technical recession at the end of 2023, underlying momentum in the economy is gradually building.

Prospects for 2024 appear a little brighter but according to some, growth will remain sluggish by historical standards. The OECD, for example, forecasts GDP will grow by just 0.4% this year. This was blamed on the after-effects of a succession of interest rate rises in the UK. The policy uncertainty inherent to elections and the possibility of leadership change could pose a modest headwind to investment and growth.

CPI – the headline measure of UK inflation fell to 3.2% in March – the lowest since 2021. A big drop in energy bills in April will drag inflation noticeably lower, but the volatile situation in the Middle East could throw a spanner in the works, potentially pushing fuel, transport and the cost of some imported goods higher.

The Bank of England (BoE) held the base rate at 5.25% in May but signaled it is edging closer to cutting borrowing costs. Economic indicators (ie inflation and jobs data) remain consistent with the BoE being able to cut interest rates soon, with the first cut expected in the summer, but the bank wants to see more that evidence inflation will stay low on a sustainable basis. Nonetheless, Governor Andrew Bailey said he is “optimistic that things are moving in the right direction”.

After a tough couple of years, the economy appears to have turned a corner. It has managed to navigate the energy crisis and period of rapid monetary tightening without experiencing a protracted downturn. Consumer and business confidence is rising (according to the latest set of sentiment-based PMI surveys) and the hope is that if momentum can be sustained, the economy will return to a more normal rate of growth.


Construction output – a measure of the value of work being completed on site – fell 0.9% in Q1. This was the second consecutive quarter of contraction. The drop in Q1 came solely from a decrease in new work (-1.8%), as repair and maintenance output increased by 0.3%.

The ongoing impacts of high interest rates, elevated construction costs and election-related uncertainty all weighed on output growth. Anecdotal evidence also suggested that heavy rainfall decreased output and delayed work in the quarter, according to the ONS.

Construction Output All Work Q2 2024
Source: ONS

The latest set of growth forecasts from the Construction Products Association (CPA) suggest construction output will fall from its peak in 2023, with a projected 2.2% decrease this year. Output levels in all but three sectors are expected to fall away this year. Housing – the largest sector – will continue to act as a major drag on overall growth.

However, there is optimism for a U-shaped recovery, with total output forecast to grow 2.1% in 2025 and 3.6% in 2026 – largely driven by the impact of falling interest rates and improving economic prospects. Only the industrial sector is forecast to contract in 2025. All other sectors are expected to see single digit (YoY) growth.

Meanwhile, new order growth – a measure of the value and volume of new orders received by main contractors – bounced back in Q1 2024, increasing by 16% to £10.4bn This quarterly increase came mainly from private commercial new work and public other new work, which increased 28% (£700m) and 44% (£536m), respectively. New housing continued to be a drag on growth, but this was solely from a 54% drop in public housing new orders. Private new work rose by 5.3% on the previous quarter.

With new orders falling below the five-year average in Q1, it’s clear that clients are adopting a cautious stance. Despite a softening in on-site cost pressures, tougher borrowing conditions and reduced access to credit continue to affect project commitments. Although the partial rebound in new order growth in Q1 was encouraging, several ongoing variables may constrain further growth

UK construction: New orders All New Work
Source: ONS